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March 16, 2015

This year's WCRI conference is now a week in the past. It was an informative event with session presenters waxing eloquent with their charts and graphs and the general nitty gritty of workers' compensation. There was a touching tribute to departing Executive Director Rick Victor and an equally touching and humble valedictory by him. An uplifting moment, that.

But in the week since then nobody's talking about the charts and graphs and uplifting moments. No, what has filled the workers' comp blogosphere is a continuing discussion about the ProPublica/NPR series, The Demolition of Workers' Comp, the result of a year-long investigation by ProPublica's Michael Grabell and NPR's Howard Berkes.

Both reports were highly critical, arguing that over the last decade more than 30 states have reduced benefits to injured workers. The ProPublica/ NPR series illustrated its thesis by focusing on individual workers who had suffered horrific injuries with poverty-inducing benefits. During the WCRI conference, as well as in the intervening week, the series has been roundly damned by workers comp professionals as biased in the extreme.

While explicitly saying he was not judging The Demolition of Workers' Comp, Dr. Victor said, "It is hard to write a balanced report based on anecdotes." Others in the business have not been so kind.

Most of our colleagues who have commented on the series have focused on what they perceived to be wrong with it. Lost in the weeds has been what is right with it. So, let me suggest what I think are two of the serious messages we should take from The Demolition of Workers' Comp.

First, it is indisputable that there is wide variance and, in many cases, profound inequality with respect to workers' comp benefits provided by the states. Grabell and Berkes pound this point home with the heaviest sledgehammer they can find. Workers' comp pros may not like that, but it doesn't make the point any less valid. Sure, they illustrate the issue with the most glaring examples, but so what? The inequality of scheduled benefits is absolutely true. It is true as Grabell and Berkes write that "The maximum compensation for the loss of an eye is $27,280 in Alabama, but $261,525 in Pennsylvania." It is true that "The loss of an arm...is worth up to $48,840 in Alabama, $193,950 in Ohio and $439,858 in Illinois.

It is also true that maximum total temporary disability benefits differ among the states, sometimes markedly so. For example, if a worker living in West Stockbridge, Massachusetts, is injured on the job, maximum TTD weekly benefits are equal to the Massachusetts state average weekly wage, which is currently $1,214.99. However, if another worker, living 3 miles to the west - in New York - suffers the same injury, his or her maximum weekly benefit is $808.65. Is that fair? Why the difference?

The answer is that, although the average weekly wages in both states are roughly equal ($2.01 separate them) and although Massachusetts' maximum benefit is equal to the state average weekly wage ($1,214.99), in New York the maximum benefit, at $808.65, is only two-thirds of the the Empire State's average weekly wage. So, the Massachusetts maximum benefit is 50% higher. Both workers may shop at the same Big Y supermarket, but I can guarantee the Big Y doesn't have one price for the New Yorker and another for the Bay Stater.

To me, this glaring disparity in state benefits, especially scheduled benefits due to the loss of bodily function, cries out for profound reform. Trouble is, I don't see any Galahad coming over the crest of the hill to right this wrong. Do you?

The second message concerns employers and it is this: Regardless of what you may think of benefits paid to injured workers, and despite the perceived high medical loss costs and physician dispensing issues we spent nearly two days last week discussing in Boston, it is true that, nationwide, workers' comp premium rates are at a level not seen since the very early 1980s, and, in some states, the 1970s. It is true that, in terms of workers' comp premiums, today's employers have never had it so good.

That's great, and I plead guilty to having worked very hard over the last 30 years helping employers make that happen. But perhaps it's time to take some of those premium savings and invest them in better scheduled benefits in the states that lag far behind in the fairness race. Perhaps it's time for all states to take another look at the 1972 National Commission's recommendations and consider re-examining how they stand with respect to recommendation adoption. Finally, perhaps it's time we workers' comp professionals unload the gatling gun and stop shooting the messengers.

October 10, 2014

Early this week, Oregon's Department of Consumer and Business Services published its biannual rankings of state workers' comp costs (by the way, did you know that "biannual" means both twice a year and once every two years? English is a funny language). Kudos to Jay Dotter and Mike Manley for once again separating the wheat from the chaff.

Since 2006, we've written about Oregon's rankings, as well as those of the actuarial consulting firm, Actuarial & Technical Solutions (ATS) and the National Foundation for Unemployment Compensation and Workers' Compensation (UWC) headquartered in Washington, DC. If you're so inclined, see our in depth 2006 report, our 2009 report highlighting Massachusetts and our 2010 report.

Following the Oregon release the blogosphere was quick to note that California, leapfrogging Connecticut and Alaska, had won the 2014 gold medal for most costly state in the nation. People, this was not a surprise.

We have been watching the Golden State's periodic workers' comp train wrecks since the late 1980s. Here's how things usually go.

1. Costs go through the roof
2. Vested interests run around with their hair on fire
3. Legislature enacts reforms
4. Costs drop precipitously (everyone takes credit)
5. Lawyers figure out how to outflank the reforms
5. Costs go through the roof
6. Repeat the process

This has happened at least three times in the last 20 years, most notably during the administration of the Terminator, Arnold Schwarzenegger, when annual costs exceeded $29 billion dollars (you read that right). After reform, costs dropped to around $14 billion. Everyone declared victory and left the field until the sky fell again.

1. Although lagging far behind California, Connecticut retains its place of honor at Number Two in the ranking. It's costs are 155% of the median costs for all states and the District of Columbia;

2. In addition to Connecticut, it's worth noting that four of the other six New England states, Vermont, Maine, New Hampshire and Rhode Island rank in the top 20;

3. And, you might ask, what about the sixth New England state, the Commonwealth of Massachusetts, the home of the bean and the cod. Well, it may be the proverbial broken record, but I'm proud to note that Massachusetts, our home state, at 48th most costly, holds the distinction (again) of being the least costly of any major manufacturing state. This has been the case for the last 15 years. Why other New England states, for that matter all other high cost states, don 't take a leaf from the Massachusetts book is beyond me.

I'm betting that California, the state, which, if it were a country would have the fifth highest GDP in the world, will continue its up and down roller coaster ride as time marches on. It's just too big with too many highly entrenched vested interests to do otherwise.

May 23, 2014

Fresh off Massachusetts Governor Deval Patrick's donnybrook with Zogenix, maker of Zohydro ER, District Attorneys from Orange and Santa Clara Counties in California have filed a consumer protection lawsuit against five opioid manufacturers, charging they conducted a more than decade-long massive and deceptive marketing campaign to mislead doctors about the risks of long-term use of the drugs and to encourage their use for minor aches and pain.

The 100-page suit paints an ugly picture of a huge conspiracy to co-opt "chronic pain advocacy and research groups" and charges that the five firms "directly and through their front organizations made and caused their misrepresentations to be made and broadly disseminated." It names the American Pain Foundation, the American Academy of Pain Medicine and the American Geriatric Society as co-opt targets.

The suit also names Key Opinion Leaders, KOLs, who the Defendants "rely on ... to promote the use of opioids for the treatment of chronic pain." These are doctors who are considered thought leaders in the management of pain and hold lofty positions at important medical institutions. The suit alleges that some of them have been promoting widespread use of opioids since the mid-1990s,

I found fascinating one particular footnote, located on page 37 of the lawsuit. It reads:

"Opioid makers were not the first to mask their deceptive marketing efforts in purported science. The tobacco industry also used key opinion leaders in its effort to persuade the public and regulators that tobacco use was not addictive or dangerous. For example, the tobacco companies funded a research program at Harvard and chose as its chief researcher a doctor who had expressed views in line with industry views. He was dropped when he criticized low-tar cigarettes as potentially more dangerous, and later described himself as a pawn in the industry's campaign."

Hmmmm. Linking what the Counties allege is a more than decade-long opioid over-prescribing conspiracy to a proven decades long tobacco conspiracy. Now that's brilliant.

Public Citizen suggests that OSHA is woefully under-serving New York's Service Industry, given that sector's over-representation in both population and occupational injuries and illnesses.

Public Citizen looked at New York for a number of reasons, one of which was its 2012 position in the Oregon Department of Business Insurance's bi-annual rankings of the states - New York came in as the fifth most costly, even after all of the Spitzer reforms had settled in. We've written often about New York's myriad problems and the efforts of the Workers' Compensation Board to address them. And we'd be remiss if we didn't mention that the recent revamping of New York's Trust Fund Assessments, by far the largest in the country, will lower costs. However, it will take some time to make a significant dent there.

But the Public Citizen Report's primary recommendation is that New York modify Labor Code Part 59: Workplace Safety Loss Prevention Program.

Part 59 requires that an employer with payroll greater than $800,000 and an Experience Modification Factor greater than 1.2 institute a formal safety program, the requirements of which are listed in Part 59. Public Citizen's recommendation is that:

"New York state's legislature should remove the threshold(s) for requiring a workplace safety plan to capture all employers in New York state."

In otherwords, New York should mandate that all of its employers comply with the requirements of Part 59, which, in case it has slipped under your professional radar, is a safety inspection and remediation program. Its 19 pages of bureaucrat mumbo jumbo require that state-approved consultants inspect employers who exceed the threshold. Part 59 lists the requirements for employers, the duties of the consultants, their required qualifications and the costs the state imposes on them for certification ($1,000 per consultant if you're a one or two person shop).

There. Now you don't have to read it. You can thank me later.

Public Citizen's Report is well-intentioned, but it misses the mark and is rather impractical. For example, in 2012 there were 592,148 workplaces in New York. Using OSHA inspection rates as a model, inspecting all of them in one year would require more than 12,000 consultant inspectors. Moreover, Public Citizen's recommendation lacks any loss cost or injury reduction performance requirements.

Nonetheless, right about now you may be asking about New York employer compliance with Part 59 as it currently exists. Me, too. However, a call to the New York Department of Labor was not returned.

In November, 2012, we wrote about Part 59's sister regulation, Part 60:, the New York Workplace Safety and Loss Prevention Incentive Program. If Part 59 is mumbo-jumbo, Part 60 is mumbo-jumbo written in Pig Latin. Like Part 59, it is totally process-driven. No performance requirements; no performance measurement. Just build a certified program, and good things will happen. As we wrote then, "The New York DOL doesn't seem to care if the program reduces loss costs. All the DOL wants to know is: Have employers built their programs the way we told them to build them?"

Well, we said it then, and we'll say it now: the most successful workers comp incentive program in history is the Massachusetts Qualified Loss Management Program (QLMP), instituted at the height of the worst workers compensation crisis ever - 1990 to 1993.

To describe how it works, here's what we wrote in 2012:

Premium credits accrue to Loss Management Consulting Firms whose Massachusetts customers the WCRIB certifies have reduced their loss costs in the year following engaging a firm. The greater the loss cost reduction, the greater the credit, up to 15%, which is then passed on to the Loss Management Consulting Firm's customers in the succeeding year. Lower loss costs mean lower premiums for employers. The Loss Management Consulting Firms have to requalify every year. So, if a Firm's results slip, it will see its credit, and probably customer portfolio, reduced. In the QLMP, all of the incentives are lined up so that everyone is motivated towards reducing costs, while providing safe workplaces and high quality care for injured workers.

In the first year following QLMP approval, loss costs dropped more than 20% throughout the entire Massachusetts Residual Market. Our Lynch Ryan clients saw reductions of 49.6%.

After Massachusetts, we tested the QLMP in Missouri's $145 million Assigned Risk Pool. Fifteen percent of the pool entered what we called the Missouri Injury Management Program (MIMP), while the remaining 85% of the Pool received normal Pool service.

After one year, the MIMP accounts had incurred loss ratios of 48% and paid loss ratios of 15%, while the non-Mimp group had incurred loss ratios of 90% and paid loss ratios of 25%.

One would think that Chambers of Commerce and Business Councils everywhere would be clamoring for this type of program for their members, but such has not been the case. Perhaps we happy few who were present at the creation never publicized results well enough. You live and learn.

Regardless, if New York, or any other state, wants to really incentivize employers to reduce injuries and loss costs, it should consider adopting a version of the Massachusetts QLMP. The good people at the Massachusetts Workers Compensation Rating & Inspection Bureau would be happy to help, and so would I.

Note: Thanks to friend and colleague Peter Rousmaniere for sharing the Public Citizen report with us.

April 29, 2014

Imagine, for a moment, that you hold the lofty position of Inspector General for a major midwest US state. Imagine further that down the road and around the corner, before you time, way back in 2005 gross malfeasance and criminal activity happened in your state's Bureau of Workers' Compensation (BWC). And people went to jail. All told, there were nineteen criminal convictions, including several prominent Republican politicians. Your governor at the time, a member of the state's most distinguished political family of the 20th century, a family that includes one member who became both President and Chief Justice of the US Supreme Court, pleaded "no-contest" to criminal charges of misdemeanor ethics violations.

Your name is Randall Meyer, and you inherit this mess in Ohio. You inherit it, because nine years ago, a political lifetime in the past, your office was charged with investigating the whole thing and producing a report that would explain what happened, along with how and why, as well as what the state and Bureau have done to prevent such a sorry affair from ever happening again.

The whole thing came about, because even farther back, in 1998, the BWC gave Thomas Noe, a major Republican fundraiser and professional coin dealer, $50 million to invest in rare coins, an investment with, essentially, no liquidity. And that is probably why no other state in the nation pursued such an investment with its workers comp surplus.

The concept wasn't complicated: Noe and his partners took the state's $50 million and, applying their professional experience, bought rare coins, which they then tried to sell at a profit. Sound risky?

In 1999, Keith Elliot, the BWC's manager of internal audits, picked up the corner of the rare coin rug and tried to see what was growing underneath, because of "the unique nature of the investment." He asked uncomfortable questions, was able to put a few minor controls in place and was essentially stonewalled by the Bureau's leaders.

Time passed. Six years, actually. Finally, the whole thing blew up in April, 2005, when Mike Wilkinson and James Drew, of the Toledo Blade, published a long piece on Noe, his business and the, till then, history of what came to be known as "Coingate."

The scandal was mothers milk to investigative journalists. As so often happens in these situations, the Blade grabbed hold and would not let go. It infuriated comfortable politicians and, in the process, performed huge public service for Ohio. For that service the Blade and its investigative journalism team won more than a dozen national, state and local awards, including being a Pulitzer Finalist for Public Service.

We at the Insider also drank deeply of Coingate's milk, writing about it numerous times. How could we not?

But, back to you, Randall Meyer, Ohio Inspector General. Last week, you issued your office's final report on Coingate - and, really, the only reason you released the redacted cat from the bag was because the Toledo Blade sued you to do it.

One would think that a report coming nine years after the investigation began and six years after the last prosecution would be juicy, indeed. But such is not the case. Your report was a mere chronology of events, not much of an investigation. You report that, "As the task force investigation was completed prior to the current inspector general assuming this office, there were no resources utilized to reinvestigate an already completed matter." So, the Report did not include any investigative records, such as witness interviews. You didn't even interview Mr. Coingate, himself, Tom Noe.

You did cause a bit of trouble for yourself, however, when you wrote in the Report that Noe's ex-wife, Bernadette Restivo, was one of those against whom the BWC won civil judgements. The lady reacted strongly to that, and the day after you released the report, you had to change it to take her out of it.

We used to sing a song in my college folk group called The Cat Came Back, a cute little ditty about a cat that would find its way back to the back porch regardless of where you sent it, even outer space. I'm reminded of that song every time I hear something new about Ohio and Coingate. Even now, despite its experience with investing in rare coins, the BWC has decided that safe stocks and bonds still aren't enough. Nope. On Sunday, the Toledo Blade's Jim Provance, picking up on a story originally reported by WorkCompCentral's Peter Mantius, reported that the BWC has invested another $50 million (that's its limit on investments) "in a Wisconsin health-care real estate fund headed by a major national Republican donor and money-raiser, Jon Hammes."

April 9, 2014

The U.S. Food and Drug Administration (FDA) has acknowledged that prescription drug overdoses are now the leading cause of injury-related death in America, surpassing auto accidents. Couple that with the Agency's approval last October of Zohydro ER, the first pure opiate painkiller, and you begin to understand why many lawmakers are left scratching their heads. More than half the states' attorneys general have asked the FDA to withdraw approval of the drug. But the Agency is unrepentant. FDA Commissioner Margaret Hamburg told the Senate that the drug is a safe and effective option for patients with excruciating pain.

In late March, a stymied Governor Deval Patrick took the highly unusual step of banning the sale in Massachusetts of the controversial opioid made by California-based Zogenix, Inc. Many in the Massachusetts legislature as well as a number of workers compensation claims professionals thought it was the best thing any governor had ever done, a bold step to protect the citizenry.

Only it's not as simple as that. It's turning out that, however well-intentioned Governor Patrick may be, he probably can't ban the sale of the drug, after all. Yesterday, US District Court Judge Rya W. Zobel told state lawyers that by Monday she wanted to see a lot more research that would buttress the Governor's ban. Nonetheless, she said that she would more than likely grant a preliminary injunction on behalf of Zogenix that would allow Zohydro ER's sale in Massachusetts. Said Zobel, "I think, frankly, the governor is out of line on this."

According to Patrick, his issue with Zohydro ER is that it is not in "an abuse-resistant form," meaning that it is not crush-resistant. Consequently, addicts (or anyone else who has the drug, for that matter,) can crush it and snort it or inject it.

Why would anyone want to do that instead of simply washing it down with a sip of water? Because in its pill form Zohydro ER is an "extended release" medication. That's what the ER stands for. In fact, Zohydro's full legal name is Zohydro ER (hydrocodone bitartrate) Extended Release Capsules. Crushing and snorting or injecting simply bazookas the whole dose at one time, which can be a deadly proposition.

Zogenix's President, Steven J. Farr, attended yesterday's hearing and, afterwards, took pains to let everyone know that Zohydro ER is safer than other hydrocodone drugs because it does not contain Acetaminophen, which can cause liver damage and failure with prolonged, high-dose usage. Farr did not mention that Zohydro ER contains up to five times the hydrocodone found in Vicodin. He did say that the company is in early stage development of abuse-deterrent formulations of the drug. That gave cold comfort to the Governor.

Whatever happens, it is hard to believe that Governor Patrick, a very smart lawyer, actually thinks he's on firm legal footing here, although outside the courthouse that's exactly what he said. As Judge Zobel pointed out (and she was decidedly irate that Patrick banned the drug without ever talking with Zogenix), Patrick cannot blame the Massachusetts opioid epidemic on Zohydro ER because the drug has yet to be dispensed in the state. She urged lawyers for the state and Zogenix to meet before the hearing scheduled for Monday, but she told everyone that Zogenix "probably will prevail."

I have a few thoughts about this little mess:

First, it is not the fault of Zogenix that we have an opioid epidemic in Massachusetts or anywhere else. Yes, there's an epidemic, but drug makers didn't cause it. Irresponsible physicians, doctors who consider the Hippocratic Oath to be a mere suggestion, have placed their patients on the slippery slope to hell by prescribing over and over again strong and addictive narcotics for conditions for which those narcotics were never intended.

Second, the vast majority of physicians would never knowingly over-prescribe any medication. They have not forgotten that Oath and why they went to medical school. The ones I know resent and cannot understand the over-prescribers.

Third, although I wish it had built crush-resistance into Zohydro ER from the beginning, Zogenix did nothing wrong here. In fact, the Zogenix complaint notes: "When FDA approved Zohydro, it considered but rejected the idea of requiring the drug to utilize abuse-deterrent technology." The company did everything it was supposed to do in gaining FDA approval. And that isn't easy. One of the more difficult tasks in the universe is to get FDA approval for a new drug. The camel through the eye of the needle doesn't even begin to describe the process. It takes many years and boatloads of money. So, you can understand that after all those years and money devoted to bringing this drug to market, to have it summarily banned is a bit hard to take.

Fourth, there are many people who suffer with agonizing pain. Think end-stage cancer. Those human beings need and deserve the best pain amelioration they can get, and the goal of the pharmaceutical industry, in addition to making money, is to give them that relief.

Finally, ending the opioid epidemic will require political courage and a much more highly-regulated process to oversee and assure that the relatively few ethically-challenged, weak-kneed and overly greedy physicians who now abuse their privilege are forced to change their bad behavior and follow that "do no harm" rule. If it weren't for them, there would be no epidemic.

July 29, 2013

John Pike may be the most (in)famous campus cop in America. He was video taped on November 18, 2011, at the University of California, Davis, spraying seated demonstrators with pepper spray. His demeanor was remarkably casual, as if he were spraying bushes for an infestation of bugs. He is now the subject of a meme that has spread across the internet, with images of Pike spraying Christina, in the famous painting by Andrew Wyeth, among other things. While we live in a culture where many are famous for being famous (the Kardashians come to mind), Pike is famous for one moment of his policing career.

An internal investigation by the university recommended that Pike be demoted. New police chief Michael Carmichael - the original chief had resigned - rejected that recommendation, deciding, in July of 2012, to fire Pike. There were a number of problems with Pike's behaviour: he used an unapproved pepper spray that was three times stronger than the university's preferred brand and he violated university protocol by spraying people in the face at close range.

Enter Workers Comp
Pike has filed a stress claim under the California workers comp statute. The state used to be famous for its lenient criteria for stress claims: only 10 percent of the stress had to be work related for a claim to be compensable. (How could work not comprise at least 10 percent of what is wrong in one's life?) Over time, California tightened up the compensability guidelines, which now total six (as outlined by the Kenton Koszdin Law Office):

1.The employment must be six months or more. Check
2.The employee must have a psychiatric condition that is listed in DSM IV. Probably a check.
3.The employee must prove that the actual events of employment are the predominant cause of the psychiatric condition (51% or more). Definitely a check.
4.A psychiatric condition that is substantially caused (35%--45%) by good faith, non discriminatory personnel action(s) is not compensable as a work-related injury. Examples of good faith personnel actions are criticism of the employee's work or attendance, change in work assignments, and decision about raises or promotion. The employer has the burden of proof on this issue. DNA.
5.A psychiatric injury that is caused by the litigation process is not compensable. Examples of psychiatric injury caused by the litigation process are an employees reaction to the denial of their claim, dealing with an abusive claims adjuster, or having their benefits terminated.DNA
6.A stress claim or mental--mental psychiatric injury claim filed after termination or notice of termination is not compensable unless the employer know of the injury or medical records of treatment for the psychiatric dated prior to the termination exist. He filed on June 10, presumably before the notice of termination.

A Mental-Mental Claim
Pike must prove compensability of the notoriously difficult "mental-mental" claim. In many states, there must be a physical injury that precedes the mental disability. In this case, the physical injury was limited to the protesters; the university settled their claims for $1 million. In the immediate aftermath of the incident, Pike in his new-found infamy has been subject to harassment, threats and humiliation. He is the principal subject of a meme that has spread throughout the internet. Stressful? Certainly. Compensable? Possibly, but by no means a certainty.

Pike's former employer will try to show that he violated policy in spraying the students, including the use of an unapproved spray. Pike will undoubtedly try to show the ambiguity of the university's policies, perhaps a lack of training specific to the circumstances he faced.

In the meantime, Pike has lost a job that paid in excess of $100,000 per year. He has achieved indelible fame for a single, ill-advised work-day decision. He is without a doubt suffering from work-related stress - stress of his own making - but the compensability of that stress is another matter altogether. We await the results of the August conference with great interest.

July 23, 2013

Back in 2009, we blogged an expose from the New York Times concerning the abuse of independent medical exams (IMEs) in New York. The article quoted 79 year old Dr. Hershel Samuels, who performed as many as 50 exams in a day. He filled out a checklist and let others write the reports. Did he read these reports? "I don't," he said. "That's the problem. If I read them all, I'd have them coming out of my ears and I'd never have time to talk to my wife. They want speed and volume. That's the name of the game."

Muckraking journalism apparently did not solve New York's IME problem. Which brings us to orthopedist Michael Katz, who makes a pretty good living performing, among other things, about 1,000 IMEs a year for the state of New York. [Details can be found at the invaluable Workcompcentral (subscription required).] After examining an injured worker, Manuel Bermejo, Dr. Katz wrote up his findings. In testimony, he declared that he spent 10 to 20 minutes with Bermejo. Unfortunately for Dr. Katz, Bermejo secretly recorded the session, which lasted just four seconds shy of 2 minutes.

Tantrum in the Court
When presented evidence of the IME's duration, Queens Supreme Court Judge Duane Hart went ballistic. "How do I stop carriers from putting people like Dr. Katz on the stand and causing the state to spend thousands and thousands of dollars trying a case and putting a lying witness on the stand?" Judge Hart referred the transcripts of the proceedings to a Queens administrative law judge for potential perjury action against Dr. Katz.

The judge's rage is understandable: IMEs are a vital activity in workers comp: in theory, IMEs offer a fresh, objective look at a worker's injuries to determine what, if anything, is wrong, the extent of the disability and the role work played in it. In an ideal world, the IME is dispassionate, with no vested interest in the ultimate determination of compensability.

Good Faith, Bad Faith, No Faith
Dr. Katz claims he has been set up by plaintiff attorneys, who believe he acts primarily to further the interests of insurance carriers. (Here is a link to a plaintiff attorney's blog featured Dr. Katz and other alleged abusers of IMEs.) On the other hand, there are surely IME doctors who tend to find in favor of injured workers and are thus favored by plaintiff attorneys, .

The world of medicine is supposed to be driven by objective medical evidence, but doctors are hardly robots, evidence is in the eye of the beholder and what the doctor sees might well be influenced by political views, personal history and, yes, even financial considerations.

It is interesting to note that the Bermejo claim began in the workers comp system, where the benefits are limited to lost wages and medical costs. Because the injury involved a fall from heights, the claim also fell under New York's unique - and understandably unreplicated - Scaffold Law. But the claim now involved literally millions of dollars: Bermejo was suing the hospital where he was treated for malpractice. It is this last suit that brought Dr. Katz into Judge Hart's courtroom. The judge was hoping for an objective analysis of the claim in order to determine whether the hospital had really screwed up. Alas, he ended up with no faith whatsoever in the quickie IME performed in the proverbial New York minute.

June 24, 2013

Connecticut is one of the highest cost states in the country, rising to #2 in the 2012 Oregon survey and a consistent source of pain to the state's employers. So we might expect that it would prove flexible to the point of surrender in the contentious area of exclusive remedy. Not so. The state Supreme Court recently barred a factory worker from accessing tort liability in a case involving what appeared to be extreme employer misconduct.

Rajanikant Patel worked the night shift as a machine operator for Flexo Converters, a manufacturer of paper bags. He was injured while trying to remove a bag that was jammed in the machine he was operating. He claimed that the machine guard had been removed and that his supervisor ordered him to reach in and remove the bag. Patel further claimed that the supervisor would not allow him to shut off the machine and threatened to fire him if he fell short of his quota of 90 bags per minute. [I will think of Patel every time I am asked the inevitable question, "Paper or plastic?"] Patel did as he was ordered and suffered the consequences, although the court ruling does not specify the extent of his injuries.

Comp or Tort?
To pierce comp's exclusive remedy shield, Patel must prove two distinct things: that his employer acted in full knowledge that he would be injured in carrying out the task and that his supervisor acted as an alter ego of the corporation. On the first point, the defense denied Patel's version of the event, claiming that there was no substantial certainty that removing the stuck bag would injure Patel. On the second, and in this case more compelling point, there was no evidence that Patel's supervisor was an "alter ego" of the corporation.

Here is the court's summary of the alter ego issue, part of its approval of a lower court's summary judgment in favor of Flexo:

In Jett v. Dunlap, supra, 179 Conn. 219, this court announced a narrow exception to the exclusivity of the act for intentional torts committed by an employer or a fellow employee ''identified as the alter ego of the corporation . . . .'' The court expressly declined, however, to extend the exception to a supervisory employee's intentional torts. The court reasoned that ''[t]he correct distinction to be drawn . . . is between a
supervisory employee and a person who can be characterized as the alter ego of the corporation. If the assailant is of such rank in the corporation that he may be deemed the alter ego of the corporation under the standards governing disregard of the corporate entity, then attribution of corporate responsibility for the actor's conduct is appropriate. It is inappropriate where the actor is merely a foreman or supervisor.''

The alter ego test is stringent. The supervisory employee alleged to have intentionally injured the plaintiff must be the employer's alter ego under the ''standards governing disregard of the corporate entity''; Jett v. Dunlap, supra, 179 Conn. 219; a test corresponding to the requirements for piercing the corporate veil. ''The
concept of piercing the corporate veil is equitable in nature. . . . No hard and fast rule . . . as to the conditions under which the entity may be disregarded can be stated as they vary according to the circumstances of each case.'' (Citations omitted; internal quotation
marks omitted.) Naples v. Keystone Building & Development Corp., 295 Conn. 214, 233, 990 A.2d 326 (2010). The standard requires that the corporation, functionally
speaking, have no separate existence from the alter ego who controls and dominates the corporation's affairs.

Connecticut has set a high standard for piercing the comp shield of exclusive remedy. This is not necessarily a bad thing, but it does raise a potential issue of fairness. Would the exclusion include egregious and potentially criminal acts by a supervisor: for example, a supervisor orders an employee to ignore standard safety procedures, using the threat of termination, and the employee is severely injured or even killed as a result. According to this ruling, as long as a "mere" supervisor directed the employee, and as long as the supervisor was not explicitly directed by company owners, the latter cannot be held accountable. Comp remains the only remedy for the injured worker.

Accountability in the Gray Zone
There may be enough ambiguity in Patel's situation to justify the retention of the comp shield, but it is not difficult to imagine a situation where exclusive remedy shields a company from what should be the core responsibility of providing a workplace free from unusual risk of injury.

Patel may have been injured due to the wilful intent of his supervisor, but the court has ruled that his only recourse is comp. In Connecticut, "exclusive remedy" comes with a hard edge that basically cuts one way, in the direction of the state's hard-pressed employers.

May 28, 2013

The folks at Murray Bresky Consultants are just trying to scratch out a living by raising chickens - not just any chickens, but free range chickens that are "happy and healthy." Their signature breed is "fed an all-natural and all-vegetable diet that, combined with plenty of exercise, makes our birds the leanest on the market. The leisurely lifestyle eliminates the need for antibiotics to prevent diseases commonly found in chickens as a result of stress and confined living conditions. Minimally processed, without the use of preservatives or other artificial ingredients, Murray's Certified Humane Chicken is truly all chicken."

Unfortunately for the company, they secured workers comp insurance through New York Compensation Managers (NYCM), the now defunct operator of a dozen self-insurance groups in New York. NYCM claimed to offer favorable rates, strict underwriting standards and exemplary claims services. They ended up with egg on their face with their inadequate rates, suspect underwriting and rampant under-reserving of claims. In retrospect, the operation ran around like a chicken with its head cut off. By the time the problems emerged (in 2006), it was too late to shake a feather and correct the problems.

Following the SIG's failure, Murray Bresky Associates was hit with a $1.2 million assessment to make up their share of the SIG's deficit. That ain't chicken feed.

A Game of Chicken
Murray Bresky is not chickening out of a fight. Indeed, the chickens have come home to roost in the form of a lawsuit filed against NYCM and its board of trustees. The lawsuit seeks to recover the $1.2 million and then some, alleging breach of contract and breach of fiduciary duty. The case worked its way up to the NY Supreme Court, Appellate Division, where the motion by the defendents to dismiss the lawsuit was, for the most part, dismissed.

Now the defendents are walking on egg shells, facing the prospect of personal liability for the failures of the SIG. Where they once feathered their nests with the proceeds of the operation, their financial security has flown the coop. This is a legal mess perhaps best described by the late Lyndon Baines Johnson: "Boys, I may not know much, but I know chicken poop from chicken salad."

Roles and Irresponsibilities
One of the former trustees of the SIG is squawking that he was not aware that he was, in fact, a trustee. He may have signed off on a few trustee documents, he may have performed some of the functions of a trustee, but he insists that he had no memory of being appointed. He insisted that he was not a bad egg and claimed that he had no place in the pecking order. The court, however, ruled otherwise.

As the saying goes, you have to break eggs to make an omelette. Quite a few more eggs will be broken before this particular concoction is served up. Hard-boiled attorneys will parse the details to figure out who, if anyone, owes Murray Bresky Consultants and exactly how much they owe.

Pecking Orders
The courts now rule the roost. They have upheld Murray Bresky's right to sue, with the exception of some actions that are time-barred. There may well be a sunny side up in the chicken company's quest for justice. We look forward to the final resolution of this stew, the chicken scratch of a judge's signature that will put a final number on the liability of an insurance operation that flaps my wattles (ie., annoys me).

Here's a little unsolicited advice to Murray Bresky Consultants: don't count your chickens before they hatch. This one has a long way to go before the company can feather its nest with the proceeds of a complex litigation. In the meantime, their free range chickens have the run of the coop, enjoying their cage-free, stress-free lives right up to the very end. Bon appetite!

April 30, 2013

When Jakob Hutter founded the Hutterian Brethren Church in the 1530s, he was not worried about workers comp (which would not exist for another 350 years). He just wanted the freedom to practice his communal religion in what is now Germany/Austria. He incurred the wrath of Ferdinand I, who, in the name of the gentle Jesus, arrested and tortured Hutter and then burned him at the stake. An inauspicious beginning to what has proven to be a stubborn, if marginal sect.

The Hutterites eventually fled Europe and found their way to the western United States and Canada. Montana has about 30 Hutterite communities in the conservative Lehrerleut tradition, each involving about 100 or so members. Community members do not own property or earn wages, they do not pay for clothing and shelter and they receive free medical care, including care for any disabling injuries. (The Hutterites, surprisingly, do have a website.) For many years they worked on their farms and, like the Amish in Pennsylvania (blogged here), they were exempt from workers comp.

As the Lehrerleuts branched out into construction work beyond their own communities, the issue of unfair competition was raised by secular contractors. As a direct result, the Montana legislature passed HB 119, which defined religious communities as "employers" and community members as "employees." The Lehrerleuts sued (although normally participation in law suits is a violation of their faith). A deeply divided court ruled against the Lehrerleuts: they must participate in the state's workers comp system. The next step will be an appeal to the U.S Supreme Court.

A Bad Match
The complex relationship between employment laws and religious groups is far beyond the scope of this blog. We focus, instead, on the interesting conundrums raised by trying to force the Hutterites into the comp system. To put it mildly, this is an awkward fit.

First and foremost, the Hutterites do not pay wages. Without wages, there can be no comp premiums, as these are calculated by multiplying class rates times payroll. Perhaps the court would require that the Hutterites take the total cost of a job, subtract materials, and consider the remainder "payroll." But even so, this would be an approximation for what is an exacting requirement for other employers.

Then there is the issue of filing a claim. Every member of the Hutterite community signs a pledge not to file claims against the community and not to sue anyone for anything. Thus, even if a comp policy were to exist, it would never be used. To make this point even more dramatic, the majority of the Montana justices pointed out that the Hutterites were free to excommunicate any member who did file a claim. What an odd concession: the justices did not bother to explain how this would not be retaliation.
NOTE TO INSURERS: Write this policy! Even in the event of catastrophic injury, no claim will be filed.

And if Hutterites are subject to workers comp, what about the Fair Labor Standards Act and OSHA requirements? The Montana court has not imposed these virtually universal standards on the Hutterites, but why not? What happens to the minimum wage when there are no wages? Can you limit hours worked when there is no payroll to track? How will you monitor underage community members operating equipment?

No Simple Solution
Forcing the Hutterites into the comp system may sound simple, but surely it is not. The majority quotes retired Supreme Court Justice Sandra Day O'Connor, who rejected a challenge brought by Native Americans to enjoin a United States forest service road through sacred areas:

However much we might wish that it were otherwise, government simply could not operate if it were required to satisfy every citizen's religious needs and desires. A broad range of government activities -- from social welfare programs to foreign aid to conservation projects -- will always be considered essential to the spiritual well-being of some citizens, often on the basis of sincerely held religious beliefs. Others will find the very same activities deeply offensive, and perhaps incompatible with their own search for spiritual fulfillment and with the tenets of their religion. The First Amendment must apply to all citizens alike, and it can give to none of them a veto over public programs that do not prohibit the free exercise of religion. The Constitution does not, and courts cannot, offer to reconcile the various competing demands on government, many of them rooted in sincere religious belief, that inevitably arise in so diverse a society as ours. That task, to the extent that it is feasible, is for the legislatures and other institutions.

In the specific instance of religious communities and workers comp, the record across the United States is fairly consistent, for the most part favoring religion. The Amish have a specific exemption from workers comp in Indiana, Pennsylvania, Missouri, Kentucky and Ohio. There are pending requests for exemptions in Minnesota and Tennessee. Supreme Courts in a number of states have upheld the right of churches to govern their internal affairs. Federal legislation exempts the Amish from collecting Social Security taxes.

The Hutterites are no flash-in-the-pan phenomenon. For nearly 500 years they have wandered the earth, seeking the right to worship in a manner of their own choosing. Work, like everything they do, is an integral part of their worship. In telling them how to work, we are telling them how to worship - and that is a line that we cross at our collective peril. If the community were abusing its members, government intervention would be necessary. But if the goal is simply to level the free enterprise playing field, that is hardly sufficient cause for imposing conventional standards on a highly unconventional community.

April 24, 2013

We have long touted Massachusetts as the gold standard for workers compensation reform. In 1990 the state operated the second or third highest cost comp system in the nation; today MA is ranked 44th, with rates less than half of those in the other New England states. At the same time, the benefit structure is relatively generous, with a maximum indemnity wage of $1,150. The "taxachusetts" label applies to many aspects of living in the Bay State, but the cost of workers comp insurance is certainly not one of them.

But as is so often the case, failure lurks at the edge of success. The Insider has written extensively about the rate suppression that is opening like a sink hole below the market. The comp rates are so low, even good risks become questionable, simply due to the law of averages. Any company in MA with a .80 mod is by definition a marginal risk, because there is not enough premium to cover the exposure.

Generous to a Point
While benefits for injured workers are for the most part generous, there is one aspect of comp where state benefits fall short of what is needed and what is available in most states: injured workers only receive 60 percent of their average weekly wage, compared to the 66 2/3 percent or higher offered in other states. The 60 percent figure emerged in negotiations during the monumental reforms of 1990; even then it seemed harsh to extract savings from the pockets of those least able to afford it.

Now, in a desperate effort to increase revenues, Governor Deval Patrick is proposing that workers comp indemnity benefits be taxed. As a result, the already reduced 60 percent would be reduced another 4-6%, depending upon the final income tax rate in the new budget. Such taxation would violate the spirit of workers comp and exacerbate the stress of being injured and out of work. One of the unintended consequences of such a tax would be to push injured workers into the hands of attorneys, who thrive on friction and live off the most inefficient and expensive part of comp, cash settlements.

A Matter of Fairness
There are many factors contributing to the MA success story: a stingy fee schedule that doctors abhor, reduced reliance on settlements, which antagonizes claimant attorneys, a speedier dispute resolution process, and a reduction in indemnity benefits for workers.

In the Bay State, injured workers have already paid a price for the lower costs of workers comp. It would be unfair to ask these workers to make even greater sacrifices, when workers in other states receive higher benefits with no taxation. No matter what the rationale for taxing indemnity benefits may be - supporting education, fixing infrastructure - the measly $8 million raised by such a tax would be insignificant when compared to the cost to those least able to absorb it. It's hard enough suffering through the pain of injury and recovery without adding insult to injury by further reducing already reduced income. This is a very bad idea and it should be tossed from the budget immediately.

March 26, 2013

Imagine identical injuries to two workers: one is a junior college graduate, the other lacks a high school diploma;one can read and compute fairly well, the other reads at the 8th grade level and performs math at the 6th grade level. The injury involves failed back syndrome, with the injured worker experiencing fairly constant pain and the inability to perform sustained physical work.

In the world of workers comp, the first worker is deemed "employable" and entitled to temporary total benefits, followed (in some states) with a lump sum settlement for permanent loss of function. The second worker, lacking the education and skills to transfer to another job, is awarded permanent total disability benefits. In the two claims involving identical injuries, a marginal education pays.

For many years, Missouri resident Todd Grauberger worked for Atlas Van Lines, moving furniture and household goods. He performed heavy lifting routinely, avoiding physically demanding work only when driving from pick up point A to delivery point B. Ironically, his injury did not involve heavy lifting: in December 2001, he bent over to put padding on a nightstand - something virtually anyone could do - and felt an immediate pain in his back. His herniated disc required surgery. Even after some minor improvements, he continued to suffer from substantial pain and numbness in his legs. He was diagnosed with a phrase that terrifies any injured worker - and any claims adjuster: "failed back syndrome."

Grauberger filed for permanent total disability benefits. His employer countered with a vocational rehabilitation assessment that concluded - without directly interviewing Grauberger - that he could perform light factory work or perhaps drive a car or truck. But the claimant's doctor countered that with a failed back and almost no transferable (non-physical) skills, Grauberger was unemployable for any position that he might be qualified to hold. In other words, his only employable asset was the labor of his body and his body was irreparably broken. In a unanimous decision, the Court of Appeals in Missouri sided with Grauberger and upheld the award of permanent total benefits.

Hiring Conundrum
Employers do not give much thought to transferable skills when they hire new employees. They simply hire people qualified to do the work. Indeed, for jobs requiring sheer physical strength, it is often cheaper to hire the lowest skilled available workers. But workers comp, long the great equalizer, takes a post-injury look at employability. Once maximum medical improvement has been reached, the issue for workers comp is simple: the worker is either employable or not. If employable, benefits come to an end. If there are no transferable skills and no reasonable prospect of employment, the benefits may continue for the lifetime of the worker.

Grauberger will never again have to worry about finding gainful employment. Because he can offer nothing of value to the labor market, and because of his persistent, debilitating pain, he will be supported by workers comp indefinitely. It's an odd calculus, seemingly rewarding the absence of marketable skills beyond the strength in one's body. In this Missouri case, limited skills and limited education secure a future well beyond the reach of a failed back and a failing body.

February 25, 2013

We have long noted how the generous benefit structure in California encourages professional athletes to file claims long after their careers are over. These athletes need not play for teams based in California: just playing a few games in the state over the course of their careers opens the door for generous lump sum payouts and, more important, lifetime medical benefits. There is indeed "gold in them thar hills."

Marc Lifsher of the Los Angeles Times does a great job summarizing the impact of California comp law on professional athletes. Since the 1980s, $747 million has been paid out to 4,500 players. That is apparently just what's been paid - the $3/4 billion may not reflect what's been reserved for future medical payments.

California's statute is uniquely generous. It allows anyone injured while working in California to file a claim in the state. Even if the worker has been paid under another state's comp system, the door remains open. Professional athletes may settle out claims for a few hundred thousand dollars, but they may also secure lifetime medical benefits: given the concussed brains and frequent musculoskeletal injuries that are a routine part of professional athletics, the lifetime medical bills may be enormous. Finally, California has a worker-friendly definition of cumulative trauma, so a professional athlete need not prove a specific body part was injured during a game in that state.

Athletic Attorneys
A number of the lawyers specializing in these claims are former athletes. Mel Owens, a former Los Angeles Rams line backer, represents a number of out-of-state athletes filing claims. "California is a last resort for a lot of these guys because they've already been cut off in the other states," he says.

Lifsher describes the situation of journeyman tight end Ernie Conwell, who played for two out-of-state teams, including the New Orleans Saints. During his 11 year career, he underwent 18 surgeries, including 11 knee operations. He filed for comp benefits in Louisiana and received $181,000 to cover career-ending knee surgery in 2006. He also received $195,000 in injury-related benefits as part of the players's collective bargaining agreement. But the claim in Lousiana only covered his knee injury. So he filed a claim in California to deal with ongoing health problems that affect his arms, legs, muscles, bones and head. A California judge awarded him $161,000 plus future medical benefits. The payer in this case, the New Orleans Saints, has appealed.

Wrong Solution to a Real Problem
There is little question that retired players face formidable physical and mental challenges resulting directly from their athletic careers. But the question on the table is whether California is an appropriate forum for delivering extended benefits for professional athletes. Part of the rationale for continuing this gratuitously generous program is the fact that athletes pay state taxes on their incomes for contests in California. But given the fact that income taxes have nothing whatsoever to do with comp, this is a specious argument. The taxes paid do not support California's workers comp system.

Ultimately, the solution to the problem of long-term injuries to professional athletes must be removed from California and relocated to where it belongs: in the labor agreements between professional sport teams and their athletes. The first step in this process requires an act by the California legislature to shut off the spigot, so that out-of-state athletes are no longer allowed to file comp cases in the Golden State. Immediately following this, the players will have to put the issue of life-long benefits for retired players on the bargaining table. This may seem obvious to those of us on the outside, but there is a reason why it may not happen: collective bargaining tends to focus on the needs (and greeds?) of today's players. Once out of the game, players - other than those joining a broadcast network - simply disappear.

As is so often the case, it's all about the money: money the owners want to preserve as profits; money the current players want in their own pockets. While management and labor are undoubtedly sympathetic to the former players, the latter are out of the limelight, struggling day by day to function with compromised bodies and brains. They paid the price. Someone should step up and negotiate a reasonable settlement. It's time for this particular form of California scheming to come to an end.

February 20, 2013

The severe injuries to a utility lineman in Tennessee delineate the fine line where "no fault" ends and "willful intent" begins. In January 2009, Troy Mitchell and his crew were replacing a forty-foot power pole with a new pole forty-five feet in height. Mitchell was in a bucket lift near the top of the new pole preparing to attach a lightning arrestor when a copper ground wire that he held in his bare hands came into contact with a transformer on the older, charged pole some five feet below. Mitchell received an electrical shock of approximately 7,200 volts. He suffered severe burns and injuries to both hands. Clearly, Mitchell was in the course and scope of employment, but he had removed the safety gloves that would have prevented the injury. So is this a case of no fault coverage or willful disregard of safety rules? Are Mitchell's injuries compensable?

There is no doubt about the severity of the injuries. Mitchell underwent eight surgeries--five on the left hand and three on the right. Procedures included cleaning the wounds, cutting away dead tissue, and removing healthy skin from Mitchell's forearms and upper arm to suture into the hands. Following these surgeries, he underwent physical and occupational therapy for ten-months in an effort to reduce the swelling in his hands and increase strength and flexibility. He was also treated for burn injuries to his side. Just over one year after the accident, Mitchell was able to return to work in the same position he held at the time of the accident.

Before considering the compensability issues, let's take a moment to applaud Mitchell for his gritty recovery and his fierce determination to get back to work. You could hardly ask for a more motivated worker.

An Initial Determination of Compensability
A trial court found the injuries to be compensable. They awarded Mitchell a vocational disability rating of 39% permanent partial disability to the body as a whole--one and one-half times the 26% medical impairment rating to the body as a whole. The court noted that Mitchell is "apparently a tough guy. He's back at work. He and the doctor worked together to make sure there were no restrictions. This is a profound injury. He has deformity on both of the hands. It's quite visible."

In addition to an award of $117,312.00 for permanent partial disability, the trial court granted $23,462.40 in attorney's fees and $1,669.20 in discretionary costs. (As much as we would like to explore the concept of "permanent partial disability" ratings for people who are able to perform their original jobs, we must set that aside for another day.)

The Appeal
Mitchell's employer appealed the compensability determination. In Tennessee - as in most states - there is a four-pronged test for willful intent. No one questioned that the first three tests had been met: (1) at the time of the injury the employer had in effect a policy requiring the employee's use of a particular safety appliance; (2) the employer carried out strict, continuous and bona fide enforcement of the policy; (3) the employee had actual knowledge of the policy, including a knowledge of the danger involved in its violation, through training provided by the employer.

The crux of the matter arises in the fourth test: (4) the employee willfully and intentionally failed or refused to follow the established policy requiring use of the safety appliance. In other words, the sole issue was whether Mitchell's removal of his gloves while in the performance of his duties was a willful disregard of safety policy.

Mitchell testified that he had worn his protective gloves when lifted in the bucket and when he covered the "hot" lines on the lower pole with rubber blankets and hosing. Having done that, he believed that he was in a "safe zone" and "clear" of the danger five feet below. He then took off his gloves to hammer a metal staple, which was to secure a lightning arrestor into the crossarm of the new, taller pole. Mitchell explained that it was easier to hammer without the gloves and, further, that he "didn't want to puncture a hole" in the gloves. After removing the gloves, he remembered being struck by a "ball of fire." He later realized later that the copper ground wire he was handling at the time must have come into contact with the transformer on the lower pole. He further testified that because he had removed his gloves under similar circumstances on previous occasions, he did not believe that he was exposing himself to danger.

On cross-examination, Mitchell acknowledged that the employer's policy was that "any time from cradle to cradle, which is when the bucket closes, you have to wear your rubber gloves if you're around anything hot․" He admitted that when he was "around" the hot wires, the rule required him to wear his gloves for safety reasons. He further understood that the employer's policy required leather gloves as an additional covering to guard against puncturing the rubber gloves. He agreed that his gloves were in perfect condition and that he should have kept them on as he attached the staple. Mitchell conceded that his failure to do so violated the safety rules. When asked whether he could hammer the staples with the gloves on, he responded, "Yes, but it's hard."

The cost of replacement gloves was not an issue: the company's safety coordinator confirmed the gloves were provided by the employer and were immediately replaced when punctured or worn out. As a result, it appears that Mitchell was just trying to save his employer a few bucks by not ruining the gloves!

A Compelling Dissent
Justice Holder dissented from the majority opinion. She noted that Mitchell believed he was in a "safe zone" and was not in danger of electrocution when he removed his rubber gloves. Holder quotes the trial court: "it is plausible that [Mr. Mitchell] believed the pole he was working on was not hot." Holder goes on to note that although Mitchell's conduct in this case may rise to the level of negligence or recklessness, the removal of his gloves when he assumed he was in a safe zone should not be deemed willful misconduct.

Mitchell, an experienced lineman, made a judgment that he had protected himself from potential harm by covering the lower power lines with insulated blankets. He removed the gloves to more easily complete the installation process. He made a mistake, he was certainly at fault, but the action, in the opinion of Justice Holder, did not rise to the level of willful misconduct.

This case falls within the perpetual gray zone in which most disputes on compensability are argued. While the majority was technically correct in their determination, and while the law does not discriminate between worthy and unworthy employees, it is difficult not to side with Justice Holder in her dissent: Mitchell is in so many respects an exemplary worker. If the rules of comp could be made to bend toward justice, perhaps they would bend in the direction of this stoic and stalwart man. Unfortunately, that's not the way this system works.

January 16, 2013

New York has just signed into law a new gun control measure [S. 2230] that comes as a direct response to the incomprehensible tragedy in Sandy Hook, CT. While the bill touts its "first in the nation" status, with respect to its approach to mental illness, it is by no means a model for other states to follow.

The bill addresses three distinct issues relating to mental illness: first, limiting access to gun licenses for those diagnosed as mentally ill and dangerous. Second, the bill requires gun owners who reside with a mentally ill and "dangerous" individual to keep guns under lock and key. Finally, and most disturbingly, the bill requires mental health professionals to report any patient who is "likely to engage in conduct that will cause serious harm to
him- or herself or others." In other words, the bill assumes that any individual with suicidal tendencies is a potential mass murderer. Such stereotyping is not what is needed in the mental health community.

Double Bind
S.2230 places a formidable burden on mental health professions - who not only must treat their patients, they are held accountable for predicting future behavior:

A new Section 9.46 of the Mental Hygiene Law will require
mental health professionals, in the exercise of reasonable
professional judgment, to report if an individual they are treating
is likely to engage in conduct that will cause serious harm to
him- or herself or others. A good faith decision about whether to report
will not be a basis for any criminal or civil liability.

If we have learned anything in the all-too-frequent incidences of random slaughter, the "likelihood" of homicidal acts is usually only revealed retroactively, long after the fact.

The bill goes on to read:

When a Section 9.46 report is made, the Division of Criminal Justice
Services will determine whether the person possesses a firearms
license and, if so, will notify the appropriate local licensing
official, who must suspend the license. The person's firearms will
then be removed.

After a therapist reports a potentially violent patient to the state - once again, this rather large population includes people who only threaten to hurt themselves - New York will run the names through the data base of licensed gun owners. All hits must result in license suspension. Of course, bureaucracies being what they are, it might take months for the suspension to take place. Hence, the individual who at one time exhibited psychotic symptoms or discussed violent feelings with a therapist might find him or herself months later confronted by cops on the doorstep. Such encounters will hardly be helpful for people trying to establish mental equilibrium.

Finally, the image of forcefully removing guns from the home surely presents enormous risk to gun owners and public safety officials alike. Who will do this and under what circumstances? My guess is that, given the profound implications of reporting patients to the state, most therapists will err on the side of non-reporting and rationalize their inaction, when necessary, under the heading of acting in "good faith."

The Wrong Cohort
It is important to note that only individuals receiving treatment for mental illness will be subject to this onerous standard. Given the fractured and fragmented nature of mental health treatment in this country, the vast majority of mentally ill individuals have never received and are not about to receive any treatment. And among the violent individuals who might well contemplate an attack of homicidal proportions, few would bother to discuss it with a therapist or go through the formality of securing a gun license before buying an assault weapon.

The relatively small subset of people impacted by the New York bill - people diagnosed with mental illness who are licensed gun owners - is likely to prove statistically insignificant, as is the probability that a single mass murder can be prevented by this radical undermining of the doctor-patient relationship. Surely, there is a better way to manage what has become a remote but appalling risk of life in the 21st century.

January 14, 2013

We have often discussed the disconnect between the roughly 100 year old workers comp system and the realities of today's workforce. The old system was not designed to handle older - and we do mean older - workers. Today's case in point is Von Brock, a 77 year old greeter for Walmart in Mississippi. In July 2008 Brock was moving a lawn mower for a customer when the handle fell off, causing him to fall and break his leg. After surgery, one leg was shorter than the other. Brock was assigned a 20 percent disability rating and never returned to work.

Given his permanent total disability, Brock was awarded benefits of $163.67 per week for 450 weeks. He requested and was granted a lump sum settlement which totalled about $75,000, minus what had already been paid, for a revised total of $53,000. Using actuarial tables for life expectancy, the workers comp commission further reduced the lump sum to $32,000 - a discount of 42 percent, compared to the usual 4 percent discount for younger workers. Brock sued, stating that he had already exceeded average life expectancy for white males and was in good health. He alleged that the use of actuarial charts was discriminatory.

Whenever the [C]ommission determines that it is for the best interests of a person entitled to compensation, the liability of the employer for compensation, or any part thereof as determined by the [C]ommission, may be discharged by the payment of a lump sum equal to the present value of future compensation payments commuted, computed at four percent (4%) true discount compounded annually. The probability of the death of the injured employee or other person entitled to compensation shall be determined in accordance with validated actuarial tables or factors as the [C]ommission finds equitable and consistent with the purposes of the Workers'Compensation Law.[emphasis added in appeals court decision]

The appeals court noted that the language of the law is unambiguous: the commission "shall apply validated actuarial tables..." Hence, despite Brock's apparent good health and his already beating the prevailing odds on mortality, the lump sum was discounted substantially because of his age.

New Realities of the Working World

The Mississippi statute, like those of other states, does not contemplate the dilemma of a 79 year old disabled worker. Nor do these various statutes take into account the precarious state of the rapidly aging American workforce, where post-employment prospects are exceedingly dim. Retirement is hardly an option for people who lack the substantial resources necessary for retirement. Von Brock continued working because he needed the money; once disabled, he needed workers comp to fill in the gap. Unfortunately, the "mortal coil" of age finally caught up with him: his working days are over.

Even if Brock had prevailed, the nest egg represented by the maximum lump sum settlement would only have covered his expenses for a few years; as it is, he now walks away with a substantially lower amount. While his former employer Walmart continues to offer discounts to bring in the customers, workers comp offers a discount that substantially reduces his ability to survive. Mr. Brock is in the vanguard of a multitude of aging workers in a dire situation. We wish them all the best of luck.

December 26, 2012

As the New Year looms, the 100 year old workers compensation system continues its awkward foray into the 21st century, it encounters problems beyond its original design: the widespread availability of opioids, increasing sophistication in medical interventions, and an aging workforce. Today we examine a formerly inconceivable conundrum: can an 80 year old man be expected to return to work after an injury?

Kenneth Brunner graduated high school in 1949 and worked steadily all his life: From 1951 through 1993 he ran the family dairy farm with help from his wife, an accountant. Brunner raised crops; used a tractor, plow and other farm machines, kept track of feed and each animal's output. He took milk samples from each cow and sent them for analysis; after receiving reports, he adjusted feed for each animal to maximize output. He supervised two to three individuals on the farm.

From 1954 through 1984 he supplemented his farm income by driving a school bus - work which, in the view of the Ohio workers comp commission, required the ability to work independently and use judgment.

From 1968 through 2000 Brunner also was employed as an insurance adjuster. He estimated crop loss for an insurance company, a job that required using scales, taking samples and writing reports. In 1990, at age 58, he was certified for insurance sales.

In January 2011, at age 77, he was working in a maintenance job, when he tripped on a drain pipe and fell face first onto pavement. His injuries were severe:bilateral frontal bone fracture; fracture lateral wall right maxilla; fracture bilateral paranasal sinuses; closed fracture bilateral nasal bone; open wound of forehead; abrasion face; closed fracture C2 vertebra.

He received workers comp benefits. A couple of years into his recovery, he filed for permanent total benefits (PTD). Brunner was 80 years out and had had enough of working.

Brunner's treating doctor concluded that he would never work again:

This claimant has an injury that is permanent and for which there is no curative therapy. This claimant has progressively suffered loss of function and has had to endure progressively more pain. The exam above shows that there is so little functional capacity and that the claimant is so affected by his condition and its required care, that there is no capacity for sustained remunerative employment and that there is no reasonable employer that would ever hire the claimant expecting any work capacity.

Based on the examination above, review of documents, and based on sound medical reasoning I find that the allowed physical conditions, independently and by themselves, render the claimant permanently and totally disabled and unfit for all sustained remunerative employment.

Once a Worker, Always a Worker?
The Ohio workers comp commission reviewed Brunner's claim for PTD benefits. They took into account his age, as well as his resume in determining that he was still capable of working. While most of his living involved physical labor, throughout his working life Brunner had displayed skills that at least theoretically were transferable to sedentary work. As a result, they rejected Brunner's request for PTD benefits. The commission did not address the likelihood of anyone offering Brunner a sedentary job.

An appeals court upheld the denial of the claim, finding that the commission did not abuse its discretion: (1) in weighing Brunner's age in assessing the non-medical factors; and (2) in determining that Brunner has some transferable skills.

It appears that Brunner's longevity worked against him. He labored well into his 70s and displayed unusual fortitude in recovery from serious injuries. Because the premise of PTD payments is protection for disabled workers who are available for work but no longer able to do it, Brunner finds himself ineligible for benefits. In a supreme irony, his ability to work as an older worker precluded the conclusion that he was unable - even at 80 - to continue working.

Brunner's dilemma is by no means unique. As the workforce ages, as more and more workers continue labor late into their seventies and even 80s, a paradox emerges: the point where one is too old to work recedes into the haze of the future, leaving injured older workers in a gray zone where their permanent injuries may or may not be compensable and where their (theoretical) ability to work mitigates against their being paid not to work.

In the months and years ahead we will see more and more litigation involving the claims of "older" workers with ages far beyond what was contemplated in the original workers comp system. State by state, the system will have to respond, becoming the focal point of economic, social and even psychological forces that are far larger than workers, comp stakeholders and state policy makers combined. This is an evolving narrative of surpassing interest. Stay tuned.

November 20, 2012

When a laborer with limited English is disabled from physical work, is he obligated to increase his employability by learning English? This interesting question emerged in the case of Enrique Gutierrez, a 48 year old welder who worked at Merivic, a company specializing in grain-related processing. Gutierrez came to the United States at age 14, but in his 34 years in the country never learned to speak or write English. While at work, Gutierrez fell about 10 feet onto a steel table, injuring his shoulder and wrist. He underwent two surgeries, worked for a while as a one-armed welder, and then was let go. His post-injury functioning was significantly limited, including difficulty lifting and carrying, gripping and grasping, and reaching.

When the workers comp commission found him permanently and totally disabled, the employer appealed and the case reached the Iowa Court of Appeals, where the finding of compensability was upheld. Up until 2007, Iowa courts routinely lowered the indemnity paid to limited English speaking workers, on the theory that a language disability was something within the power of the worker to correct. A case entitled Lovic v. Construction put an end to that practice. The reasoning in this decision is worth quoting:

Unfortunately, this line of cases [involving reduced indemnity]
overlooked the fact that the employers who hired these workers should
have reasonably anticipated that an injury which limits an ability to return
to manual labor work would have far more devastating consequences
upon non-English speaking workers than English speaking workers.
Oftentimes, this agency has penalized non-English speaking workers
despite the knowledge that the employers actually recruited such workers
because they were willing to work for less wages.

In other words, you get what you pay for: limited English speaking workers are willing to work for less, so the employer benefits from this potential "disability." The ruling goes on to attack the rationale for the reduced wages:

What has been troublesome to many, including myself, is that this
agency has never similarly treated non-immigrant workers for failing to
learn other skills. Defendants would certainly have trouble citing any
agency or court precedent in the workers' compensation arena where an
industrial award for an English speaking worker was lowered because the
injured worker, before the injury, failed to anticipate he would suffer a
devastating work injury and failed to obtain a type of education before the
injury that would mitigate the effects of such an injury.

We simply cannot assume that claimant was capable of such training or that such classes are generally successful in leading to employment where fluent English is required . . . .

By reiterating the logic of the pre-Lovic court, Merivic was attacking settled - albeit recently settled - law. The Appeals Court rejected this "collateral attack" on Lovic and upheld the permanent total award, and in doing stumbled upon yet another conundrum: that of the older worker. The court found that once a laborer goes beyond age 47, his ability to perform physically demanding work comes into question. A vocational expert retained by Gutierrez described the 48 year old worker as "approaching advanced age." The Judge noted that "We have previously held the age of forty-seven is a factor that the commissioner may consider in finding industrial disability." The expert also noted that Gutierrez's entire career involved "limited education" and a work history limited to physically demanding jobs, which his permanent work restrictions now prevented him from performing.

The Very Big Picture
Our Colleague Peter Rousmaniere provides a valuable perspective on aging manual workers. In his Risk & Insurance article "The Age Trap" he points out that 55+ workers comprised 16.7 percent of the workforce in 2010, a number projected to increase to 22.7 percent by 2020. In contrast to Enrique Gutierrez, most aging workers are not injured and eligible for workers comp; to be sure, their bodies are wearing down and they are confronted with diminishing strength and balance, even as they desperately try to hold onto their places in the workforce. Rousmaniere suggests that employers develop a renewed focus on prevention, one that has been adapted to the realities of the aging worker. After all, these workers are valued for the skill and experience they bring to the work, even as their work capacities diminish.

The Big picture here - and it is a very big picture indeed - is the dilemma of aging workers who perform physically demanding jobs and who have little education and virtually no transferable skills. There are millions of such workers, some are immigrants, while many others are native born. Most have zero prospects for a secure retirement, even as Congress contemplates pushing social security retirement even further into the future.

Whether they like their jobs or not, aging workers see themselves working out of necessity well into the their 60s, 70s and even 80s. As their bodies inevitably wear out, as their injuries (cumulative and sudden) lead a number of them into workers comp courts across the country, judges will be confronted with the same dilemma that faced the appeals court in Iowa: for older workers with no transferable skills, workers comp becomes the retirement plan of choice for those with no retirement plans and no way to continue working.

November 16, 2012

John Pearson was diagnosed in his mid-20s with diabetes and was insulin dependent. About fifteen years after the diagnosis, he was working for an Arkansas temporary placement agency, Worksource, which sent him to a steel fabricator. His temporary employer gave him a pair of steel toe boots and assigned him the task of covering warm steel bundles with blankets. The job required a lot of rapid walking across a large field, as the bundles emerged from the plant at odd intervals. In the course of the day he experienced discomfort in his left foot and at the end of the day he found a blister on his left great toe. The next day he requested a wider pair of boots, but none were available. The employer suggested he buy them, but he could not afford to do so before being paid - and payday was still a couple weeks away.

Two weeks later Pearson was diagnosed with "diabetic neuropathy and cellulitis." Worksource sent him to another doctor, who diagnosed a diabetic ulcer and cellulitis and placed him on light duty, restricting his standing and walking. (The court is silent on how long Pearson continued to work at the steel fabricator.) Ultimately, surgery was performed on the toe, which fortunately did not require amputation, and Pearson was able to begin working again, albeit with (temporary) restrictions. Pearson took a job in a Waffle House, where he was able to resume full time work. In the meantime, he was faced with lost wages and formidable medical bills.

Proving Compensability
Pearson filed a workers comp claim, which at first was accepted and then denied on appeal to the Arkansas Workers Compensation Commission. The denial was based upon an interpretation of state law:

(4)(A) "Compensable injury" means:
(i) An accidental injury causing internal or external physical harm to the body
or accidental injury to prosthetic appliances, including eyeglasses, contact lenses, or
hearing aids, arising out of and in the course of employment and which requires
medical services or results in disability or death. An injury is "accidental" only if it
is caused by a specific incident and is identifiable by time and place of occurrence;
(ii) An injury causing internal or external physical harm to the body and arising
out of and in the course of employment if it is not caused by a specific incident or is
not identifiable by time and place of occurrence, if the injury is:
(a) Caused by rapid repetitive motion.
[Arkansas Code Annotated section 11-9-102(4)(A) (Supp. 2011)]

The Arkansas Court of Appeals agreed with the commission that the injury did not meet first criteria: there was no specific incident identifiable by time and place. However, the Court found that the injury was caused by "rapid repetitive motion," applying a two-pronged test that is stunning in its obviousness: did injury involve "repetition" and did it involve "rapidity"?

The "repetitive" part involved walking itself: Pearson walked up and down the field in tight boots, watching for the steel bundles as they emerged from the plant. The rapid part involved his walking briskly to protect the bundles as they appeared. He walked from bundle to bundle, as fast as he could, performing the job as instructed. In doing so, the boots rubbed his toe continuously over the course of the day, resulting in a blister. For most people, a blister is no big deal. For a diabetic, it could lead directly to amputation.

Lessons for management?
It is difficult to draw conclusions from this unusual case. Because Pearson was a temporary employee, the steel company had no awareness of his diabetes and no reason to be aware of it: he was able to perform the work as assigned. Theoretically, they could have done better on Pearson's request for wider boots, but they had no reason to anticipate a serious problem beyond a bit of discomfort. Pearson himself was probably unaware of the risks involved in wearing the tight boots. He obviously was feeling pressure to earn money and probably thought the discomfort, while painful, was not a serious matter.

Perhaps the most important aspect of this case is Pearson himself: despite a life-altering health problem, he is strongly motivated to work. In the few months described in the court narrative, he tries hard to do what he's supposed to do and he keeps working as best he can. Given comfortable footwear, Pearson will do just fine.

November 5, 2012

New York's workers' compensation system has taken a few high hard ones to the head lately. Premiums are now the 5th highest in the nation (according to the well-respected "2012 Oregon Workers' Compensation Premium Rate Ranking"); its surcharges are the highest in the nation; the Spitzer reforms, aimed at reducing costs to employers and improving care for injured workers, have done neither; attorney involvement is among, if not the, highest in the nation; the house-that-Jack-built bureaucracy is cumbersome and unwieldy; and all the parties in the system, every last one of them, bemoan what they perceive to be a train wreck of monumental proportions.

At the same time, New York's Workers' Compensation Board has come under wilting criticism from nearly all quarters. Mike Whitely, from Work Comp Central, has been doing an excellent job of reporting and documenting the whole thing. Last week, the New York Business Council weighed in with some heavy artillery of its own. In short, everyone's frustrated, and tempers are frayed.

I know the Board's senior management, and I am absolutely convinced that all of them, from Jeff Fenster on down, are highly dedicated. These are competent professionals doing the very best they can, but they are up against long odds. They are David with a broken slingshot, and Goliath is growing bigger every day. It does not appear that New York's loggerheaded vested interests - lawyers, doctors, insurers, unions, the Legislature, employers, and more still - will come to any grand bargain anytime soon.
So, is there anything the Board or anyone else can do to create some positive, forward momentum? I think there is, and it involves what is known as Code Rule 60, which is the New York Department of Labor's Workplace Safety and Loss Prevention Incentive Program. It's sometimes known by its really catchy and memorable acronym, WSLPIP. Code Rule 60, which came into being in September of 2009, is supposed to help employers establish DOL certified and approved safety, return to work, and drug and alcohol prevention programs. Participating employers receive premium credits: 4% for safety, 4% for return to work and 2% for drug and alcohol prevention. The credits run for 3 years (but the two 4% components drop to 2% in the second and third years) and are renewable. Only employers with experience modifiers of less than 1.3 are eligible (although why the state prohibits employers who would seem to need it the most from participating is a piece of logic beyond my comprehension).

The premise of Code Rule 60 is that employers who establish these programs will have safer workplaces and, eventually, lower costs. Not a bad idea. The problem is that the DOL has made the program so ridiculously bureaucratic that it would be easier for a New York employer to find his way through a dense maze of thorns, blindfolded, than to negotiate the journey to Code Rule 60 certification. Don't believe me? Here is the official Labor Law Regulation (PDF), in other words, the way through the thicket. It's 20 pages of dense bureaucratese. Busy employers find it nearly impossible to wade through the legal Pig Latin.

Code Rule 60 is totally process driven. There is no performance requirement. No performance measurement. Just build a certified program, and good things will happen. Maybe. The New York DOL doesn't seem to care if the program reduces loss costs. All the DOL wants to know is: Have employers built their programs the way we told them to build them?

With the preceding as background, you might be forgiven for asking how successful has the program been? Regardless of whether they've reduced loss costs, how many employers have succeeded in getting those precious premium credits? Even the New York Business Council couldn't find out, but, anecdotally, the number is fewer than five. Since September, 2009.

So, here's my proposal: First, scrap Rule 60. It's not working, and it never will in its present form. Second, Jeff Fenster should pick up the phone and call Paul Meagher, the highly respected President of the Massachusetts Workers' Compensation Rating and Inspection Bureau (WCRIB). Why? Because long ago at the height of the Massachusetts workers' compensation crisis, when 65% of the Commonwealth's employers were in the High Risk Pool, Mr. Meagher was instrumental in establishing the Massachusetts Qualified Loss Management Program. The QLMP (later replicated in Missouri, West Virginia and New Hampshire) is totally performance driven, and it played a big role in the Massachusetts workers' compensation turnaround, the continued success of which was documented last week by the Workers' Compensation Research Institute and last month in the Oregon study.

Here's how it works. Premium credits accrue to Loss Management Consulting Firms whose Massachusetts customers the WCRIB certifies have reduced their loss costs in the year following engaging a firm. The greater the loss cost reduction, the greater the credit, up to 15%, which is then passed on to the Loss Management Consulting Firm's customers in the succeeding year. Lower loss costs mean lower premiums for employers. The Loss Management Consulting Firms have to requalify every year. So, if a Firm's results slip, it will see its credit, and probably customer portfolio, reduced. In the QLMP, all of the incentives are lined up so that everyone is motivated towards reducing costs, while providing safe workplaces and high quality care for injured workers. (Full disclosure moment: The QLMP was an idea I gave to the WCRIB and the Massachusetts Division of Insurance).

Senior management of the New York Workers' Compensation Board has told me on many occasions that their overarching goals are to reduce costs to employers and to see that high-quality care is provided to injured workers. It's obvious that Rule 60 is doing neither. A New York version of the Massachusetts QLMP would be a good first step in that direction.

October 22, 2012

Jimmy Walters worked for the Florida Department of Corrections. In December 2009, he came down with a cold, but continued to work for a week. He suffered from chills and nausea on his days off and then experienced chest pain. He went to a hospital, where he was treated for "heart symptoms" and subsequently diagnosed with myopericarditis and cardiomyopathy. He was hospitalized for several days. He filed a workers comp claim, under the Sec 112.18, the "firefighter's presumption" which creates a rebuttable presumption of occupational causation for disabling heart disease.

For most workers, there would be no conceivable issue of compensability for flu-caused heart problems, but most workers do not work in the public safety arena and most workers are not protected by presumption laws. The facts of the case were not in dispute: there was a direct causal relationship between Walters's stomach flu and subsequent heart problems. His initial claim was denied by the state of Florida and by a judge on appeal, who ruled that Walters had not proven that his viral gastroenteritis was an occupational disease or that the exposure was traceable to the workplace.

The District Court of Appeal overturned the ruling and awarded benefits for the treatment of heart disease. The judges noted that the presumption statute shifts the burden of proof from the claimant to the employer: "The state had the burden to prove he did not get the virus at work, and failed to carry its burden." Some burden! The chain of causality is stark and rather crude: for public safety employees, any heart ailment caused by illness is compensable, unless the employer can trace the exposure to specific, non-work conditions. Where the cause/exposure is unknown - as in most cases - there can be no outcome other than the awarding of benefits.

By facilitating benefits to firefighters and police who may develop cancers or heart desease related to employment, law makers acknowledge the unique exposures for the people who protect us.[Back in 2008, my colleague Julie Ferguson provided the background for presumption laws.] But the generous language of these statutes may open the door to compensability far wider than any prudent legislature would intend.

The Politics of Presumption
In practice, presumption laws may create as many problems as they solve. For stressed taxpayers who ultimately foot the bills, cases of questionable compensability can be shocking: the firefighter with lung cancer who smokes two packs a day, the obese cop with heart disease, and now, the corrections officer with a flu-caused heart problem. Are these truly work related? For most people, the answer would be "no way." For the public safety employees covered by presumption laws, compensability is a given. Their safety net is woven of much finer cloth than that which protects most people in the working world.

October 17, 2012

Today we examine two states, side by side on the map, going in opposite directions in their workers comp rates: Connecticut, which has the dubious distinction of being the second most expensive state (only Alaska is higher) and Massachusetts, ranked 44th for overall costs, with rates so low the market is beginning to implode. These states may be headed in opposite directions, but each faces a pending crisis.

Messing with the Miracle
We begin with Massachusetts, which my colleague Tom Lynch summarized brilliantly a few weeks ago. After nearly two decades of rate reductions, MA employers are now paying about the same rates as existed in the early 1980s. Compared to the other New England states, MA rates are consistently lower, some times one fourth that of their neighbors. So it is hardly surprising that the Workers Compensation Rating and Inspection Bureau (WCRIB) sought an increase in the rates: they initially requested 18 percent, with the realistic hope of ending up somewhere in the vicinity of 6 to 8 percent. A rate increase of this magnitude would maintain the state's position as the lowest among the major industrial states, still far below its New England neighbors.

The response of the state's Division of Insurance is, in its methodology and ultimate result, a public work that might make the infamous Big Dig seem prudent and reasonable. The Division dismantles the entire application, demeaning and ultimately dismissing virtually every data element supporting the rate increase. While it is true that some of the data was inconsistent - due largely to the idiosyncracies of insurer submissions - the report's conclusion that no rate increase was merited defies common sense. Indeed, when the attorney general opines that higher rates "would greatly increase the cost of doing business in Massachusetts and have a deleterious effect on the overall employment level," one can only wonder what they have been smoking - perhaps the substance on the ballot up for legalization next month.

One the mainstays of the Division's argument is the fact that insurance carriers continue to offer rate deviations: proof, in the Division's eyes, that the rates must be high enough. Perhaps it is time to remind the bureaucrats who administer this program that insurers always think they can defy the odds and find the optimum risks. Insurers sell insurance to the people and organizations least likely to use it - or so they hope. As Tom Lynch likes to say, "insurance companies are prone to eating their young." Nonetheless, a glance across state lines and across the country reveals that Massachusetts is about to cook the golden goose: with the current unabated rate suppression, the assigned risk pool will continue to grow and savvy carriers will scale back their participation in the workers comp market.

Asleep at the Wheel
While Massachusetts's inaction on rates jeopardizes the most successful comp reform program in the country, Connecticut meanders toward economic disaster. As recently as 2008, the state was ranked 20th for overall costs in the invaluable Oregon Rate Study. But in 2010 they rose to 6th, and the state now sits in the number two spot, ahead of such reliably high cost states as New York, California and Florida. The median cost of comp in CT has risen to $2.99, compared to the nation-wide average of $1.88. (MA comes in at a paltry $1.37.) CT suffers from a toxic combination of very high medical costs (doctors love it) and a worker-centric system that is extremely generous with benefits. To add insult to injury, NCCI is requesting an additional 7.1 percent increase in the already bloated rates. Costs are out of control and regulators are asleep at the wheel.

Surely it is time for business advocates in Connecticut to raise the red flag. The cost of comp has reached unacceptable levels. When business owners can move their operations to New York to lower the cost of workers comp, you are in deep, deep trouble.

Across the Rate Divide
MA and CT provide compelling examples of enigma variations: in the perpetual search for comp rates that are fair to both carriers and businesses alike, these states have drifted too far from the middle ground. How they reached this point may be an enigma, but what they need to do is clear: take immediate steps to extricate themselves from rate cycles that simply are not working. It will take leadership, vision, and courage to confront these reverse-image crises.

In MA, regulators must stop playing political games - no easy task in a hyper-political state - and allow rates to begin a long overdue, moderated rise.

In CT, regulators must confront entrenched stake holders and begin to exert control over runaway costs.

With rates either much too low or much too high, state leaders and regulators are mired in swamps of their own making. If the current inertia is allowed to continue, the two states may eventually end up in the same place: with dysfunctional comp systems incapable of serving the needs of injured workers and employers alike.

October 3, 2012

When risk managers scan the virtually infinite horizon of risk, they often overlook the single greatest exposure in the working world: driving cars and trucks on the roads of America. Today we approach the issue through the back door, wherein an individual killed in an accident was deemed not be in the course and scope of employment. It might be the backdoor, but it still leads to the same conclusion.

Linda Gadbois was a cook for the California prison system. She suffered a work-related injury and was sent to a doctor. When this doctor proved unsatisfactory, she was allowed to choose another medical provider from a list. After completing her appointment in May of 2008, she headed back to work. She was involved in an accident: Gadbois was killed; the other driver, Kenneth Fields, was seriously injured. Under the theory that Gadbois was "in the course and scope" of employment, Fields sued Gadbois and the state of California, her employer. No need to ask why: the state's pockets were significantly deeper than those of the late Gadbois.

Going to Work
Field's case rested on the interpretation of the "coming and going" rule: was Gadbois, leaving a medical facility after work-related treatment, inside or outside of employment? The court noted that she had requested the second treatment on her own. Her employer did not require her to drive to the appointment, nor was she required to drive as part of her employment. As a prison cook, the essential job functions were limited to her cooking: how she got to work was not her employer's concern.

As a result, the fifth district appeals court concluded that the state was not liable for any injuries Gadbois caused while on her way to work. Field's suit against the state was dismissed; the status of his suit against Gadbois is not known, though presumably he collected up to the limits of her personal auto insurance policy.

It is worth noting that Gadbois's death was not compensable under workers comp. Gadbois was paid for the day of her death in accordance with a death benefit policy that covers all workers who die on a regular work day, whether at work, on the way to work, or on paid vacation or leave. Gadbois received her full salary for the day of the accident, but received nothing from workers' comp. Had she received death benefits under comp, Fields would have had a stronger case.

Drivers: Good, Bad and Indifferent
While the specific circumstances proved Gadbois to be the exception, many people do drive in the course and scope of employment: obvious examples would be tradesmen, salespeople on the road and people whose customers are visited in their homes. But the circle of drivers must be expanded to include any and all employees who run errands or perform any aspect of their jobs in company cars or in personal vehicles.

Some employees do this company-related driving on a regular basis; others only sporadically. But any employee driving "in the course and scope" of employment is a representative of the employer. Whether consciously or not, the employer has endorsed the driving skills of employees whose work involves driving. Even if the employee is in a personal vehicle, the employer has, in effect, entrusted them with the keys. This "entrustment" may well comprise the riskiest part of the working day.

Basic Management
How should employers manage this risk? It's really quite simple. Any and all employees who drive - or who might possibly drive - while working should be required to submit annual copies of their driving records. If there is a cost in obtaining the records, the employee should be reimbursed. The employer should review the records carefully and place restrictions on any employees with marginal or poor driving records. Indeed, the employer may well find that some employees who drive while working do not hold valid licenses. If these unlicensed drivers have accidents while working, the employer is on the hook for anything that happens.

In addition, employees should be required to report any moving violations, on or off the job. A speeding violation on the weekend might not preclude an employee from driving during work, but a formal warning would be appropriate.

Finally, prudent employers should have written policies on limiting the use of cell phones while driving and, needless to add, prohibiting texting. These policies should be enforced, with appropriate documentation and disciplinary action for any violations.

The risks of driving permeate our lives. When we drive in the course of work, the risks are shared by employee and employer alike, even if the latter is oblivious to the exposure. For the savvy manager, a well organized approach to the risks of driving goes a long way toward containing the ever-present perils of the open road.

October 1, 2012

Over eight years ago, my colleague Julie Ferguson blogged on the issue of workplace heart attacks: compensable or not? (Workers Comp Insider just passed its ninth birthday, but we've been too busy to celebrate.) Heart attacks present a unique challenge to the courts overseeing workers comp. The general standard requires that something unusually stressful happened at work in the moments leading up to the incident; if people are doing their usual work in the usual manner, the heart attack does not arise "out of" employment. If, on the other hand, the demands of work are unusually stressful and beyond the ordinary, the incident might well be compensable.

Today's case raises the isse of whether anything that happens on Super Bowl Sunday can be ordinary. Colleen Robert's husband (no first name given in the court documents) normally worked as a receiver for Waldbaum's Supermarkets in New York. While the 2010 superbowl did not involve any New York teams - the contest featured the Indianapolis Colts versus the New Orleans Saints - Super Bowl Sundays are always busy for super markets. Roberts was asked to manage the store during the unusually busy day. At one point, he engaged in a verbal altercation with a customer (which in itself may not be unusual for those working in New York). Later that same day, while still at work, Roberts suffered a myocardial infarction and died.

The case was first deemed compensable, then denied by an administrative law judge, and then finally adjudicated by the Appelate Division of the New York Supreme Court. The judges noted that any death at work is presumed to be work related, but they also looked for a causal connection between the fatal attack and the work being performed. The autopsy revealed that Roberts suffered from extensive cardiovascular disease and thus was a good candidate for a myocardial infarction. In arguing against compensability, the defense pointed to the lapse of time between the verbal altercation with a customer and the attack itself. However, the judges noted that the entire day was full of stress and excitement for Roberts, who was not performing his usual job in the usual manner. They determined that the fatal heart attack was compensable.

Best Practices
In a similar case involving a supermarket in Massachusetts, a 70 year-old man with a pacemaker collapsed and died on his break. Because he had a known heart condition, and because of his age, the market assumed the fatality was not work related and failed to report it to their insurer. Months later, the widow filed for comp benefits. Due to the absence of timely interviews with co-workers and supervisors, and due to the "death at work" presumption, the case was deemed compensable.

The lesson for employers is both simple and straight-forward: report any and all incidents of heart problems immediately. Regardless of the state jurisdiction, the courts are likely to apply the same standards as in New York. And if a heart attack occurs on Super Bowl Sunday, defense may have a tough time proving it was just another working day.

September 25, 2012

One of the most compelling issues in the compensability of workers comp claims is determining the moment when coverage begins. For most workers, coverage begins at the worksite, often in the employer's parking lot. Under the "coming and going" (or "to and fro") rule, the commute to and from work is generally not covered. There are exceptions, of course, and these exceptions become the focus of litigation when an injury occurs during a commute. When a serious injury or, in today's case, a fatality occurs, there is a lot at stake in the interpretation of this deceptively simple rule.

Juan de los Santos worked for Ram Production Services, a Texas company that services gas and oil leases. De los Santos was assigned to work on a gas lease located on a large piece of fenced ranchland. The employer furnished de los Santos with a company-owned truck and paid for work-related fuel expenses. The truck was not for personal use. De los Santos spent a significant part of his workday traveling to wells and job sites within a designated area known as the Buck Hamilton Ranch. De los Santos entered the ranch through the only entrance, a gate where he was signed in by a guard. De los Santos traveled to the exact same location each day to begin his work, which started at 6:00 a.m. He was a salaried employee, who was not paid extra for his travel.

One Fateful Day
In June of 2005, de los Santos was driving to work, on a public highway, when he was involved in an accident that resulted in his death. He was survived by his wife, Noela, and his daughter, Kimberly Ann. [Note that the litigation around the compensability of his death remained unresolved more than seven years later.] Noela filed for workers comp benefits, which were denied, then granted, and then finally resolved in the Texas Fourth Court of Appeals.

Mrs. de los Santos tried to develop a narrative of the accident that met the standard for a compensable claim: she noted that her husband was traveling in a company truck furnished as part of his employment contract, and that her husband's travel originated in the employer's business because he was taking a route to a remote job location, was on a "special mission" at the time of the accident, and was transporting tools and equipment to the worksite.

Deconstructed Narrative
The appeals court dismantled her narrative one piece at a time:
- Being in a company vehicle does not mean you are necessarily "in the course and scope" of employment;
- Yes, he was driving to a remote location, but that was his regular assignment, unchanging from week to week;
- Even though he was meeting a contractor at the jobsite, this did not mean he was on a "special mission" as he was headed to his usual workplace at the usual time;
- And the fact that he was carrying tools and equipment did not change the nature of the commute. [NOTE: had he been injured moving the equipment into the truck, he would have had a compensable claim.]

The court noted that "there is no bright line rule for determining if employee travel originates in the employer's business; each situation is dependent on the facts." And the facts, as the court interpreted them, did not favor the widow's claim. They reversed the trial court's ruling by rendering a "take-nothing" judgment. Take nothing, indeed.

Thus, after seven years, the case grinds to its conclusion. Mrs. de los Santos and her daughter are on their own.

Letter of the Law
The court was correct in its determination that de los Santos was on his ordinary commute to his regular workplace. While we all have moments when we might like to engage in social engineering - the widow and her daughter certainly could use a helping hand - the rules are the rules and the law is the law. Workers comp offers a formidable package of benefits to workers across America. The wage benefits are generous and the medical benefits superior to any conventional health plan. But the barrier to coverage is substantial: the injury - in this case, fatality - must arise "in the course and scope" of employment. In his drive seven years ago on that lonely and presumably quiet back road to his remote job site, de los Santos was commuting to work. He never made it to the Buck Hamilton Ranch. Now, years later, his widow must deal with the consequences of his not quite reaching the gate, where his compensable workday would have begun.

September 24, 2012

Cooper Road in Middletown, New Jersey, is rumored to be haunted by strange, ghostly creatures. They jump out from behind trees and startle the drivers of cars traveling down an unpaved portion of the road. There are no street lights and the road has sharp turns, so the appearance of these apparitions is both sudden and alarming. Based upon the numerous oddities in New Jersey's workers comp law, these ghostly beings might well be carrying sign boards that read "Ruined by balanced billing."

From the perspective of virtually any other state jurisdiction, New Jersey's approach to the reimbursement of medical providers in the workers comp system is demon-ridden and rather strange. To begin with, there is no fee schedule. Providers are entitled to their "usual and customary" fees. By leaving fees to the providers, the state creates an unusual level of tension between these providers and the insurance carriers and self-insured employers who pay the bills.

The tensions are not limited to the payers, however. When a payer refuses to cover all or part of the "usual and customary" bill, the provider has the option of billing the injured worker for the balance. The euphemism is "balanced billing" but in both concept and practice this is as unbalanced as a comp system can get.

The Broken Premise
The fundamental premise of workers comp is that the medical costs and lost wages of workers injured on the job will be covered by their employers. In return, workers have given up the right to sue their employers for work-related injuries and illnesses. In most states, the protective barrier between injured workers and the costs of treatment is absolute: there are no copays, no deductibles and no fees whatsoever for injured workers. Comp even covers the cost of travel to and from treatment. "Out of pocket" is a concept that simply has no place in workers comp.

Medical coverage under workers compensation is, in the words of my colleague Tom Lynch, "the best coverage plan in the world": it pays for everything and includes indemnity payments for lost wages, too. The only catch - and it's a big one - is that to qualify you must be injured "in the course and scope" of employment, with an injury "arising out of" employment.

Balanced billing is patently unfair to workers. Routine disputes between medical providers and payers spill over to injured workers. Unpaid portions of medical bills are sent to the workers, who are in no position to pay them. When workers routinely refuse to pay these bills, they may find themselves harassed by collection agencies. Not exactly what the doctor ordered when you are trying to recover from your injury and return to work.

Senate 2022 to the Rescue?Senate Bill 2022 is wending its way through the New Jersey legislature. The bill recognizes the inherent unfairness of balanced billing and would put an end to the practice. Any disputes about payment would revert to the workers comp bureaucracy, but under no circumstances would the disputed portion of any medical bill become the responsibility of the injured worker.

It's interesting to note that the bill explicitly avoids the issue of a fee schedule. Medical providers will continue to bill for their "usual and customary" fees, which, in turn, will keep the cost of medical treatment relatively high. But at least the injured workers will be exempt from the dispute. That's the least the Garden State can do in its belated effort to restore fairness and equity to the comp system.

Here's hoping that S 2022, in one form or another, finds its way to the Governor's desk in time for Halloween. That would soothe the ghosts on Cooper Road and allow them to revise their signs to address some other glaring inequity in our imperfect world.

September 21, 2012

Back in 2009 we blogged the fate of strippers at the ironically named King Arthur lounge in Chelsea MA. The club treated the women as independent contractors, but the court found that they were employees and ordered the lounge to pay back wages to the strippers. (I wonder if they were able to collect.) Today we examine a similar situation with a dramatically different outcome: the saga of LeAndra Lewis, a free-lance stripper in the Carolinas.

The 19 year old Lewis worked a network of strip clubs in North and South Carolina. She traveled from one club to another, bringing her own (skimpy) costumes and working on her own schedule. She would approach a given club, uninvited and unannounced, and ask for access to the stage. She would pay an enrollment fee (about $70) and then dance as she wished to dance, collecting tips from the customers. If a given customer really liked her work, he might "make it rain" with dollar bills. At the end of the evening, she would pay a portion of her tips to the club owner. Lewis grossed an estimated $82,000 a year, but no one knows for sure, as she did not bother filing a tax form.

In June of 2008 she found herself working in L.B. Dynasty, DBA Boom Boom Room Studio 54 - you have to love the Studio 54 tag, adding a touch of New York glamour - and some white powder? - to an otherwise marginal venue. A fight broke out while Lewis was in the club. A random bullet hit her in the stomach, causing severe internal injuries. She filed for workers comp benefits; the club did not carry insurance (surely no surprise), so the claim reverted to the South Carolina Uninsured Fund. Her claim was denied on the basis that she was an independent contractor, not an employee of the club.

The Usual Criteria in an Unusual Setting
In its ruling on Lewis's claim, the South Carolina Appeals Court upheld the denial. They used the typical four pronged analysis for independent contractors to determine her work status:

1. The right or exercise of control: Lewis was free to come and go and free to dance as she chose; there were rules of behavior, but these did not constitute an employment relationship;
2. Furnishing of equipment: the court observed that the provision of a stage, a pole and music were practical matters, as a traveling stripper would not be able to bring these to each venue;
3. Method payment: the club did not actually pay Lewis anything, as she herself paid a fee to dance and a portion of her earnings to the club.
[NOTE: As we noted above, Lewis paid no taxes on her earnings, and it goes without saying the club paid no benefits on her behalf.]
4. The right to fire: the court determined that the right to throw Lewis out for violation of club rules did not make her an employee.

Judge Short dissented from the majority opinion, noting instances in other states where strippers were determined to be employees - he did not site the King Arthur Lounge case. But sad as Lewis's story is, and tragic as the results for her have been, the court probably got this one right. Lewis worked as an itinerant stripper, with no real base of operations. She walked into clubs, offered her services, and was given a stage on which to perform. She moved on when she felt like it. Had she been a regular at the Boom Boom Room, she could have made a stronger case. But this 19 year old woman was very much on her own. The money was good while it lasted, but she now finds herself unable to have children and, due her scars, unable to perform her chosen work. Like all truly independent contractors, Lewis was on her own that fateful day in 2008 and she must live with the consequences for the rest of her life.

Which brings us to Dennis Carver, a roofer who worked for Delta Innovative Services in Kansas City. Carver was carrying a 100-pound roll of composite weather barrier up a ladder - no easy task! - when he injured his back, resulting in a permanent total disability. The problem was that Delta had a safety policy that required three point contact with a ladder at all times: it would be physically impossible to carry a 100 pound roll and maintain three point contact. Because he violated the policy, Carver's indemnity was cut in half, from $743 per week to $371.

Carver admitted that he went to work with the intent of violating the policy. He knew that instead of having the usual crew of 11 men on the job, the crew that day would total two people: himself as foreman and one other crew member working in a separate area. He knew full well that he was on his own. He also knew that company policy required that he use a hand pulley or power equipment - or request the assistance of a coworker - to lift materials to the top of a ladder.

Delta argued that Carver caused his own injury by failing to follow its "three-point" safety rule. Slam dunk for the employer? Here is the statute:

[w]here the injury is caused by the failure of the employee to use safety devices where provided by the employer, or from the employee's failure to obey any reasonable rule adopted by the employer for the safety of employees, the compensation and death benefit provided for herein shall be reduced at least twenty-five but not more than fifty percent; provided, that it is shown that the employee had actual knowledge of the rule so adopted by the employer; and provided, further, that the employer had, prior to the injury, made a reasonable effort to cause his or her employees to use the safety device or devices and to obey or follow the rule so adopted for the safety of the employees.§ 287.120.5

"The burden of establishing any affirmative defense is on the employer․ In asserting any claim or defense based on a factual proposition, the party asserting such claim or defense must establish that such proposition is more likely to be true than not true." § 287.808.

The Checklist
Thus the statute presents a checklist for reducing indemnity payments:

1. that the employer adopted a reasonable rule for the safety of employees; CHECK

2. that the injury was caused by the failure of the employee to obey the safety rule; CHECK

3. that the employee had actual knowledge of the rule; CHECK and

4. that prior to the injury the employer had made a reasonable effort to cause his or her employees to obey the safety rule. NOT SO FAST!

Theory and Practice
While Delta's owner, Danny Boyle, testified that "[n]ormally our guys are trained ․ [that] the only thing that should be carried on a ladder is the person himself," he then testified that employees routinely violated that rule:

Q. Does that mean nobody ever carries anything?

A. Not at all. Guys tend to do things wrong all the time.[emphasis added]

Q. And that's what--

A. I'm just being truthful.

Q. Sure. It happens. It's faster to carry it up sometimes?

A. Yes.

Q. Because you're trying to finish a job and get something done, you may carry something up a ladder as opposed to using the beam?

A. Yes.

Q. Or the pulley?

A. Yes.

Even though Boyle was aware of multiple instances in which employees had failed to follow the three-point rule, he was unable to provide any testimony concerning discipline imposed on noncompliant employees. In other words, the policy was not enforced. And because it was not enforced, Delta must own the consequences of employees failing to follow it.

Roofers at Risk
Boyle's testimony that "guys tend to do things wrong all the time" reminds me of a telling moment in a training session some years ago. I was explaining the implications of implementing a drug testing program and the owner of a small roofing company responded: "I could never do that. Half my guys would fail." [Need I add that, following the seminar, I alerted the underwriter to flag that account for non-renewal?]

Would it surprise you to learn that roofing is one of the most expensive job classes in workers comp? The rates can run as high as $50.00 per $100 of payroll and even higher. It is difficult, demanding work. In some respects, there is no such thing as a good day for a roofer: it's either too hot, too cold, or too windy. The exposures are relentless and the work itself, especially on the commercial side with hot tar involved, can be noxious.

Owners of roofing companies like Danny Boyle are faced with a daily conundrum: do I enforce the rules and slow down the work? Do I discipline employees for violations or let the work flow, hazards be damned? In the course of normal employment, it's tempting to ignore the finer points of safety. But that puts workers at risk for serious injuries - and owners at risk for footing substantial bills.

September 14, 2012

Whether in a local coffee shop or a Dunkin Donuts (but never a Starbucks?), the coffee break is an iconic moment in the routine of a police officer and thus appropriate fodder for our Friday blog.

Carolyn McDermed, a lieutenant in the Eugene, Oregon, police department, left her desk in the station and walked across the street to purchase coffee. She planned to drink it at her desk. Unfortunately, she was struck by a car and suffered multiple injuries. Her claim for workers comp revolved around one central issue: was she on a personal errand or "in the course and scope" of employment? Was she on a break or on call?

An administrative law judge ruled that McDermed was indeed working; the ruling was upheld recently by the Oregon Court of Appeals.

McDermed worked in the Office of Professional Standards; she managed her own time and took breaks when she felt like it. But unlike most of us, who can leave our work behind when we head out for coffee, McDermed was still prepared to do her job. She carried her cell phone and might be required to return to her office on a moment's notice. Indeed, her coffee breaks were not without incident: one time she witnessed an auto accident and administered first aid; another time she escorted a woman fearful of a stalker to the latter's office; and when a vehicle caught fire near her office, she applied a fire extinguisher and exerted crowd control. As a well-known, 17 year veteran of the force, she found herself frequently answering questions out in public about community law enforcement concerns. No wonder she would take the coffee back to her desk, where she could at least enjoy it in relative quiet.

Public safety officers are a bit like comic book heroes: they are expected to respond to public need at a moment's notice. Thus, even though there were no safety issues on the day of the accident, McDermed was prepared to respond had something arisen. She was on duty and on call. Her work environment was not limited to her desk in the police station, where most of her duties were performed.

In the Course of Employment
The appeals court clarified the concept of "in the course of" employment:

An injury occurs 'in the course of' employment if it takes place within the period of employment, at a place where a worker reasonably may be expected to be, and while the worker reasonably is fulfilling the duties of the employment
or is doing something reasonably incidental to it."

It is possible to extend the implications of this ruling to the point where public safety officers are on call 24/7. When the police encounter a circumstance requiring intervention or assistance, they are obligated to respond. They might be home in bed, or shopping at a mall with the family, or just moseying across the street for a cup of coffee, but they must be ready for anything and thus they are, potentially at least, at work. Compensability would revolve around what they were doing at the time of the injury and why they were doing it. In McDermed's case, her taking a break did not sever her availability for service.

So the next time you see some cops taking a coffee break (that shouldn't take very long), rather than ask whether they could find something better to do, remind yourself that they are on call and at work, unlike most of us, whose coffee breaks really are a break from our daily routines.

September 11, 2012

I have written before about what I consider to be a true Massachusetts Miracle: The 1992 reform of the Commonwealth's workers' compensation system and the results achieved following that reform. Bottom line - premium rates in Massachusetts are among the lowest in the nation while benefits are among the highest.

To make that happen back in 1992 all of the varying and vested constituencies had to come together and enter a grand compromise where everyone lost something so that the system could flourish as it has ever since (I won't bother to mention that the current crop of folks we Americans have sent to the nation's capital might learn something from this).

Employers and injured workers have benefited hugely from the 1992 reform. Insurers not so much, especially lately. Early this year, the Massachusetts Workers Compensation Rating and Inspection Bureau, representing insurers doing workers comp business in the Commonwealth, requested that Massachusetts Commissioner of Insurance, Joseph G. Murphy, approve a premium rate increase of 18.8%. After the Division held hearings and thought about it for a while, Mr. Murphy announced that he was denying the request - all of it. Result: Status quo, just as in New York a few weeks earlier. But if you think about it, this might actually be an insurer victory of sorts, because Massachusetts Attorney General Martha Coakley had made her own rate filing, which called for a reduction in rates of 8.8%. After Commissioner Murphy announced his decision, Ms. Coakley issued a press release saying, "The industry's request to raise rates could not have come at a worse time for small businesses in Massachusetts." She also congratulated herself and Commissioner Murphy by saying, "The decision will save Massachusetts workers compensation insurance customers approximately $175 million compared to the rates they would have paid if the proposed rate hike was approved."

The decision will also cost the Commonwealth's insurers the same $175 million.

But let's get real for a minute. As Bill Clinton said last week, "It's all about the arithmetic."

Now, there are many variables impacting premium rates in any state. For example, workers compensation medical loss costs have been rising in Massachusetts. Just a couple of years ago they comprised an enviable 36% of total loss costs; now they're up to about 40%, and rising. But I thought perhaps I could put things in perspective if I just looked at the Massachusetts evolutionary development of a few key factors since the 1992 reforms. And those factors would be workers compensation premium rate changes, wage development and the progression of the CPI. The data in the chart below is taken from the Bureau of Labor Statistics, the Massachusetts Division of Unemployment Assistance and the Massachusetts Department of Industrial Accidents (DIA), summarized in the Massachusetts Division of Insurance's Annual Report of 2010 (PDF) and DIA Circular Letter 336, dated 6 October 2010 (PDF).

In the 17 years since 1994, there have been six years with double digit rate reductions, the largest being 21.1% in 1998, five years with single digit reductions, ranging from 1% to 4%, five years without change, and one year with a whopping big rate increase of 1%. The result is that rates in Massachusetts are where they were in the early 1980s. One by-product of this situation is that many Massachusetts employers seem to have lost the sense of urgency when injuries occur.

On the other hand, the CPI has increased every year since 1994 with the exception of 2010, when there was no change (it's interesting to compare the CPI development with periods of recession; look at 2009 and 2010, for example), and the average weekly wage in the Commonwealth has grown from $586 in 1994 to $1,088 in 2010 (in 2012, it's now more than $1,100).

The result shows a steady increase in costs and a steady decline in rates. I have to say that the reductions from 1994 through 1999 were entirely appropriate; those are the result of the 1992 reform. However, the six years with reductions since then, totally 28.3%, are questionable.

The consequences of both Commissioner Murphy's current decision as well as the recent reductions are now being felt. The Massachusetts Assigned Risk Pool is growing quickly; in the last year it's jumped from 12% of the market to 15% ($152 million in premium), and that was before the decision of two weeks ago. It would not surprise me to see Pool growth accelerate in the immediate future.

September 10, 2012

We have been tracking the compelling issue of compensability in drug overdoses within the workers comp system. We have blogged drug-induced fatalities that are compensable (Tennessee) and non-compensable (Ohio and Connecticut). Given the prevalence - make that rampant over-use - of opioids in the workers comp system, prescription drug abuse is an issue with profound implications for injured workers, their employers and the insurers writing workers comp policies across the country.

Which brings us to the saga of Bruce Ferguson-Stewart. He was injured on May 25, 2004 while working for AltairStrickland, an industrial contracting firm in Texas. A bolt weighing several pounds fell from above, striking Ferguson-Stewart and injuring his shoulder and neck. The MRI showed "minor disc bulges" at three levels on his cervical vertebrae. His treating physician diagnosed him with a left shoulder contusion and prescribed hydrocodone as part of the treatment plan. The doctor also recommended surgery to repair the shoulder.

Denial and its Consequences
For reasons that are not clear from the trial documents, the claim was denied by Commerce & Industry Insurance, the employer's carrier. The carrier lost the initial appeal and then lost again. The insurer then sought judicial review of the Division-level finding of compensability.

Meanwhile, with his shoulder untreated and in extreme pain, Stewart continued to take his prescribed Hydrocodone, known locally as an "East Texas cocktail." At every level of appeal, the compensability of the claim was upheld, but the surgery was delayed - with apparently disastrous results. (The delaying tactics may have been related to Stewart's alleged history of abusing prescription drugs.)

On October 3, 2004, while his worker's compensation claim was still being contested, Ferguson-Stewart died from an overdose of hydrocodone. His blood contained a hydrocodone level of 0.38 mg/L, which is consistent with acute severe toxicity. The blood also contained carisoprodol, a prescription muscle relaxant, and marihuana.

Trial by Jury
Ferguson-Stewart's widow filed for death benefits under workers comp, but the case was denied. The widow appealed.

At trial, Ferguson-Stewart presented two theories as to how and why Stewart might have unintentionally or unknowingly ingested a lethal dose of hydrocodone. First, in what CIIC describes as the "accidental overdose" theory, Ferguson-Stewart alleged that the overdose must have been accidental because her husband did not intentionally or knowingly commit suicide.

Tommy J. Brown, a forensic pathologist who performed an autopsy on Stewart, concluded that the cause of death was hydrocodone toxicity and that the manner of death was "accidental." Brown's testimony is right out of central casting:

Well, I--I see it a lot. I do autopsies on people with chronic pain a lot and
this--like before I see them, start out with their drugs and then they
increase the drugs, and then to try the [sic] alleviate the pain more, and pretty soon they're taking more than prescribed, and pretty soon they will
overdose theirselves [sic] or they will overdose theirselves [sic], some
people do. And then they die and it's usually in a low lethal range [like
that observed in Stewart]. So I consider that an accidental death because
they were overdosing due to the chronic pain.

With its pathos and illuminating detail, the widow's testimony reads like a monologue from a Faulkner novel:

The day before or the day of--that he died. They say he actually died
early in the morning; so, I guess the day before. He was really disoriented. He was not acting normal or the way he had been acting since he was hurt. He wasn't acting normal at all. His speech was slurred. He was stumbling and falling all over things. I remember--I think I remember one time he actually falling [sic] out of a chair and--in the yard
because he was trying to get up and he tripped over a root and he fell on
the shoulder he had injured. And that made it even that much more
painful for him. He was--he was very--he was crying about it. He really
had hurt himself.
. . . .
He was--in the last couple of days before he died, he was getting really
bad about forgetting that he had already taken his medicine and taking it
again; and you know, sometimes I would have to tell him, "Hey, you
already took it. You can't take it again." And usually he would agree with me; but there were times when he would say, "No. No. No. I didn't take it. I'm sure I didn't take it. I'm still hurting too bad, and I don't remember taking it." So, he'd take it again.
But especially the day of [his death], he was entirely too confused. He
wasn't--like I said, he wasn't himself at all.

The jury charge instructed that "[a] claimant's death does not
result from medical treatment instituted to relieve the effects of his compensable injury if the death results solely from a claimant intentionally or knowingly failing to comply with his doctor's instructions[emphasis added]." The jury concluded that Ferguson-Stewart's death was unintentional, resulting from the treatment for his compensable injury. The widow was granted death benefits.

Intention, Confusion and Compensability
Under Texas law, compensability hinges on Ferguson-Stewart's intent: was the death an intentional suicide or was it an accident? He had no intention of killing himself, so the death was compensable. In a somewhat similar Connecticut case (see above), the overdose was the result of the deliberate (and illegal) act of using a needle to ingest drugs. That case was denied.

Behind every death due to prescription drugs lies a story worth telling. Powerful and effective pain killers are transformed into instruments of death. When it comes to the compensability of these cases, disorientation and confusion are not limited to injured workers experiencing pain. The medical and workers comp systems struggle with the ambiguous legacy of medications: while opioids offer immediate, short-term relief from pain, the relief is followed all-too-often by a downward spiral of addiction and dependency.

I truly wish the testimony of Ferguson-Stewart's widow could be played in the examination room of any doctor about to write a script for an "East Texas cocktail." The doctor just might consider a more benign and less toxic alternative.

September 6, 2012

The Insider has come across an intriguing but ultimately frustrating study concerning the under-reporting of workers comp claims in New Hampshire. Under the auspices of the NH Department of Health and Human Services, the Behavioral Risk Factor Surveillance System survey (with the unfortunate acronym of BRFSS) conducted phone interviews with nearly 7,000 adults who were employed during 2008. About 340 people - close to 5 percent - reported that they had been injured at work sometime during the prior year - injured, that is, seriously enough to require "medical advice or treatment." (Sigh, when you include "medical advice," you might be including the first-aid-only incidents that should be excluded from the study.)

Here is the interesting - if somewhat compromised - nugget from the study. Among those who were injured, only 54 percent reported that their treatment was paid ("all or in part") by workers compensation. The remaining 46% reported their treatment was paid for by private or government insurance (25%) or by other means (21%). Unfortunately, by the time you get down to the 150 people in the non-comp segment, the combination of small numbers and ambiguous questions seriously reduces our ability to draw any meaningful conclusions. The study may indicate substantial under-reporting, but to know for sure, the researchers are going to have to ask some more questions.

Focus on Comp
Because the survey is conducted by the Department of Health and Human Services, the focus on workers comp is, pardon the expression, almost accidental. In fact, the 2008 survey was the first time they included questions about workplace injuries and payment for related treatment. While I applaud their interest in comp, I hope they would consider adding just a few questions to make the survey more effective. Assuming the survey guarantees anonymity, the questions might include:
- For those reporting that they are self-employed, ask whether they carry workers comp insurance (it is optional in NH).
- For those reporting that they were injured, the follow-up questions should be limited to those who secured outside medical treatment (and not those seeking only "advice").
- If comp paid just "part" of the treatment cost, who paid the remainder?
- For any worker whose treatment was not covered 100% by workers comp, ask whether they paid anything out of pocket (which would be a violation of comp law).
- If treatment was covered by a non-comp insurer, ask whether workers were instructed by their employer to report the injury as "non-work related" (employers giving this instruction and employees following it are committing insurance fraud).
- For any workers reporting injuries, ask whether they lost time from work due to the injury and whether they were paid for the time they missed. (Some employers are so determined to avoid the comp system, they pay wages for employees missing time due to injury, even beyond the state's three day waiting period.)

Cost-Shifting?
Lurking in the shadows of this study is the distinct possibility that under-reporting is real and possibly instigated by employers trying to game the experience rating system; they are shifting costs onto forms of insurance that are less loss sensitive. In addition, Injured workers may fear retaliation for reporting legitimate injuries: they may face disciplinary action, may be fired, may be denied overtime or may even ruin the "days without accident" program that dangles the promise of a pizza lunch and drawing for a TV if a certain number of days are free from (reported) injuries.

The BRFSS study provides just enough data to tease us: there may be a serious issue here, but then again, there may be no problem at all. To the good folks in New Hampshire, let this be a word of encouragement. Your study, to put it rather harshly, may be kind of useless in its current form, but with a little tweaking, it might lead to genuine insight into the way injuries are managed in - and possibly diverted from - the state's workers comp system.

August 28, 2012

What happens to honest businesses when unscrupulous competitive businesses fail to carry workers' compensation insurance for their employees? In the difficult economy, some of the honest players have suffered losses while scofflaws thrive. North Carolina's NewsObserver features an investigative series on Ghost Workers, which takes an in-depth look at the many ramifications of workers' comp avoidance schemes and the ways that this type of fraud hurts other businesses, the state's coffers, and any workers who are injured on the job.

State legislators and candidates in the upcoming state elections are competing to raise the outrage meter in the wake of the NewsObserver's revelations that as many as 30,000 employers are failing to carry workers' compensation insurance. Many of these employers are misclassifying workers as independent contractors, so they are also thumbing their noses at other statutory obligations such as taxes, Social Security, unemployment tax, and overtime pay.

Unsurprisingly to those who have followed the misclassification trail in other states, the construction industry offers a fertile climate for fraud to thrive. The NewsObserver explains how a unique bureaucratic loophole in the state can be worked to game the system:

"A business owner, often in the construction industry, tells his insurance agent that he has no employees. He excludes himself from the policy, which is his right as a sole proprietor. He buys a policy to cover a "ghost," an unknown employee who might unexpectedly join him to work during the year.

These policies can make a business look like it has more insurance coverage for its workers than it has."

Tax dodging employers can hide under layers of subcontractors, as well as by hiring illegal immigrants. And state agencies that operate in silos are not coordinating to thwart this practice.

Not all the employers are small operations - the expose talks about a firm named Martin's Bricklaying, which supplied 76,000 hours of labor to help build the $125 million Wake County Detention Center, earning $1,066,538 for this work.

"The company's owner, Sabas Martin Galeana, has run afoul of state and federal tax obligations in years past, court records show; he settled the last of three liens in 2009. A review of several employees' recent pay stubs shows that Martin has failed to withhold state and federal taxes as recently as July. The workers say he didn't provide his workers the tax forms they needed to settle their own obligations."

The practice of employee misclassification isn't unique and it's hardly surprising. But what is surprising is that North Carolina is so slow off the mark when other states and the federal government have been taking aggressive steps to curb misclassification and to penalize scofflaws. We've been covering stories of states getting tough on misclassification and workers comp avoidance since 2004. We wonder how the heads of various agencies in North Carolina never noticed. The state has faced serious budget cuts to valued services in recent years, all the while bleeding much needed tax revenue to lawbreakers. Kudos to the NewsObserver for their series.

North Carolina legislators will be working to plug this hole - particularly since it's an election year. They may also want to sign on to federal efforts such as the Deparment of Labor's Misclassification Initiative. Thirteen states have signed Memorandum of Understanding (MOUs) with the Department of Labor's Wage and Hour Division, and in some cases, with its Employee Benefits Security Administration (EBSA), Occupational Safety and Health Administration (OSHA), Office of Federal Contract Compliance Programs (OFCCP), and the Office of the Solicitor. The DOL says that these MOUs, "will enable the Department to share information and to coordinate enforcement efforts with participating states in order to level the playing field for law-abiding employers and to ensure that employees receive the protections to which they are entitled under federal and state law. Employers that misclassify their employees may not be paying the proper overtime compensation, FICA and Unemployment Insurances taxes, or workers' compensation premiums."

August 27, 2012

Last month, Tom Lynch posted a concise and rather devastating macro view of workers comp costs in New York. Today we revisit an issue that illustrates the difficulty of lowering costs in the Empire State: the use of stenographers in each of the several hundred thousand hearings that take place every year in New York. With some reluctance, we will set aside the question as to whether the 300,000 hearings and the 30 million scanned documents are actually necessary in overseeing comp in New York. (They are not, but that is fodder for another day.)

As we read in Work Comp Central (subscription required), New York employs over 100 stenographers, along with their supervisors, to generate an "accurate record" of comp hearings. The staunch defenders of these stenographers - they are legion in the legislature - believe that the only way to secure an acceptably accurate account of a comp hearing is the use of a live stenographer. Electronic devices will miss the nuances, will mess up the occasional non-English word, will make unintentional errors, and will be flummoxed by occasions where more than one person is talking at the same time. In other words, without stenographic documentation, courtroom justice as we have come to know it in the Western world will cease to exist.

Best Practices
When the New York Workers Comp Board proposed a program to test digital recording of hearings, 67 comments were generated. Would it surprise you to learn that 66 of the comments objected to making any changes in the way hearings were documented?

As is often the case, the only reasonable context for examining the Byzantine construction that is New York comp is a comparison to other states. Do other states conduct hearings for any proposed change in each and every claim? Do other states scan every document moving through the comp system? Do other states require stenographic documentation of every comp hearing? Do other states prohibit the use of digital recording in the courtroom? Clearly, New York is out of step with the nation in these areas. Thus it should come as no surprise that the only aspect of comp where New York is a pace-setter is in the spiralling cost of comp to its employers.

One Small Step for Man...
In response to the NYWCB's plan to introduce digital recording into some of its hearings, the legislature passed Assembly 7508, which made explicit and absolute the requirement to use live stenographers. The Insider is pleased to report that Governor Cuomo vetoed the bill. This green - or should we say yellow? - light to proceed with a testing of digital recording will begin to align New York with other states in its approach to courtroom transcripts.

It's Not About the Jobs
In the context of a faltering economy, it is important to note that court stenographers are unlikely to face any layoffs. They are union employees, covered by a five year contract negotiated last year. The pilot use of digital recording is not aimed directly at them. So how does the new program, made possible by the Governor's veto, save money? By gradually shifting away from live stenographers to the use of cheaper - and comparably accurate - technology. As the current incumbent stenographers retire - or move on to new careers - the vacancies will not be filled. In all likelihood, these $60K per year jobs will eventually disappear.

With all the humongous cost-drivers in New York workers comp, the stenographers are a very small part of the problem. Nonetheless, there is significant symbolic value in taking on this miniscule stake holder. The long-standing problems in New York stem from a system that has made very little movement away from the bitter labor environment of the early 20th century. A profound lack of trust permeates the system.

The Governor, the legislature and the comp board need to evaluate each and every proposed comp initiative from a simple and fundamental test, based upon the essence of comp: does the proposed action improve benefits and conditions for injured workers? And does it lower costs for employers? Other considerations - politics-as-usual, stake holder leveraging and sheer bureaucratic inertia - should no longer be part of the discussion.

August 24, 2012

What better blog fodder for a Friday than a waiter at TGI Friday's choking on a quesadilla? Michael Bernard was sampling new menu items at his restaurant in Virginia when he literally bit off more than he could chew: he tried to eat a piece of quesadilla that was too big for his esophagus. It caught in his throat. In the process of trying to remove it, he perforated his esophagus and his lung collapsed.

Bernard filed for workers comp. While it is clear that his injury occurred "in the course and scope of employment," the question was whether it arose "out of employment." Virginia's standards for compensability are more stringent than those in many other states. The Court of Appeals upheld a lower court's denial of the claim. The judges focused on the quesadilla itself: was there anything unusual about it that might cause a swallowing problem? Bernard testified that there was not. As the majority wrote, "Bernard's quesadilla was neither a hazard nor a danger - it was simply a quesadilla."

Risks Unique to the Workplace
The judges noted that under Virginia law, injuries must stem from risks unique to the workplace. For example, an employee who trips while walking on stairs cannot collect workers comp unless there was something unusual about the steps or related conditions in the workplace. (In most other states, a fall on the stairs at work is compensable, even if the stairs were free of hazards.)

Bernard's lawyer argued that the injury arose "out of employment" because quesadilla testing was a job requirement which furthered the interests of the employer. If a customer asked "would you recommend the quesadillas?" a waiter - presumably not Bernard - could testify to their relative deliciousness. The judges determined that swallowing food was a hazard confronting Bernard every day of his life; there was nothing extraordinary or unique in swallowing an ordinary quesadilla.

Essential Job Functions
In a dissenting opinion, Justice Frank points out that quesadilla testing was an essential requirement of the job:

Browning Bridges, claimant's supervisor, testified the food tasting activity was to familiarize staff with the taste of new foods so they could explain those tastes to guests. Part of a host/server's employment responsibilities is to "sell the food." While attendance at the food tasting activities is mandatory, no employee is required to eat anything they do not want to eat. However, all host/servers are evaluated on the effectiveness of their recommendations to guests, and failure to make such recommendations can result in counseling by management. Employer even employs "secret shoppers" to assess staff members' performance, including recommendations of menu items.

Alas, had Bernard known the consequences of the simple taste test, he could have passed on the quesadilla. When asked by a customer if he would recommend it, he could have simply said: "Absolutely. They're great!" But he did what he was asked to do and paid a terrible price.

The moral of the story comes from our mothers: slow down, eat small bites, and chew your food carefully. Most of us, in the course of our hectic lives, are prone to ignore this sage advice.

August 15, 2012

When it comes to on-the-job assaults, healthcare workers are on the front lines. Earlier this year, NCCI issued a report on Violence in the Workplace, which showed that homicides and assaults are trending down. Good news, overall, but let's take a closer look at assaults:

"The decline in the rate of workplace assaults has lagged the steady decline in the rate for all lost work-time injuries and illnesses. This reflects a notable change in the composition of the US workforce and, in particular, the ongoing increase in the share of healthcare workers, who experience remarkably high rates of injuries due to assaults by patients. This is especially common in nursing homes and other long-term care facilities. In fact, 61% of all workplace assaults are committed by healthcare patients. For assaults, coworkers make up just 7%, and someone other than a healthcare patient or coworker comprises 23%. The remainder is unspecified."

Now, a new research report from Maine offers a close-up snapshot of the issue of workplace violence as it relates to caregivers. The Research and Statistics Unit of the Maine Department of Labor compiled data from First Reports of Injury for 2011 and issued a report on 2011 Violence Against Caregivers in Maine.

The report encompassed about 100,000 workers in healthcare and affiliated professions. Of the nearly 10,000 thousand injuries reported by those workers, 13.4% were related to violent and aggressive acts by patients and care recipients.

Key report findings include:

Where incidents occurred - Mental health care settings and other residential care facilities accounted for 52% of all violent/aggressive incidents in 2011. These were followed by nursing care facilities for the elderly and people with disabilities, 18.9%, and general medical and surgical hospitals and services, 16.8%.

What types of jobs were involved - Nurses at all levels (including nursing assistants) were involved in 21.27% of the cases; education technicians were involved in 18.6% cases; direct support professionals (personal care, hygiene, life skills, etc) were involved in 9.4% cases; Other occupations with significant numbers of cases included psychiatric technicians, behavioral health technicians and analysts, mental health and social workers and child care and senior child care workers.

What types of assaults occurred - The most prevalent type of assault - being hit - accounted for 21.3% of all incidents. Bites were the second highest reports, at 16.6%, of the incidents. Other identifiable assault categories included kicks, 9.45%, and being grabbed, 9.4%.

Due to the high number of bite incidents, a specific section of the report focuses on bite injuries and references information from the Federal Bureau of Prisons' 2009 Clinical Guidelines regarding viral and bacterial exposures and the potential for infections if the skin is broken. The report also cites NIOSH publications and reports, including common risk factors for violence and a list of potential prevention strategies.

July 23, 2012

Anyone involved with policy making knows that insurance rate filings can have, how best to put this, political dimensions.

Case in point: Last week, New York Governor Andrew Cuomo and his Insurance Department of Financial Services stuck their collective fingers into the holes in the dike holding back a workers' compensation cost Tsunami.

Here's what happened and what we think it means for the future. The New York Compensation Insurance Rating Board (NYCIRB), which in New York functions much like the National Council on Compensation Insurance (NCCI) functions in most other states, had filed a loss cost rate increase request of 11.5% to be effective 1 October 2012 (we'll come back to that in a bit). After due consideration, the Department of Financial Services rejected the Rating Board's filing, ruling that there would be no increase in loss costs. Result: status quo.

In his remarks about the decision, Governor Cuomo said, essentially, that the last thing New York's employers needed, given the economy in which they are forced to exist, was an increase in the cost of workers compensation. Amen to that. The Governor also said that the insurance industry had not taken fully into consideration the decrease in costs associated with reforms enacted in 2007 under the Spitzer administration.

It's a great picture - reforms enacted, costs go down, everybody's happy. If only that were true. There are a number of fact-based reasons why it's not.

We talked with Consulting Actuary Scott Lefkowitz, FCAS, MAAA, FCA (Lefkowitz has more initials than I have fingers), a partner at Oliver Wyman, a leading global management consulting firm with offices in more than 50 cities across 25 countries and a member of the Marsh & McLennan companies. Mr. Lefkowitz specializes in workers' compensation and operates from Oliver Wyman's Melville, NY, offices. In addition to consulting to many of New York's employers and reviewing loss cost filings for numerous regulators, he offers expert testimony in many jurisdictions. His testimony with respect to the Rating Board's filing and his comments following the Department of Financial Services's rate request rejection offer a stark contrast to the optimistic (perhaps a better word might be "hopeful") remarks of the policy makers and politicians. His public comments and testimony are here: NYCIRB Hearing 2012 Comments with Cover Letter (PDF).

In the first place, there is the indisputable fact that the 2007 reform has just about doubled the maximum indemnity benefits paid to injured workers, from a pre-reform maximum of $400 per week (which had been the maximum since the early 1990s) to $792, effective 1 July 2012. That maximum is still lower than most all of the industrialized states. Even so, consider this - according to the recently released 2012 Edition of NCCI's Annual Statistical Bulletin, the average cost of a lost time claim across all NCCI administered states for 2008 adjusted to a final cost basis is $47,800. However, when the NYCIRB publishes data claim costs, it projects only to what is called a 9th report, a subtle, but important, distinction. For 2008, the NYCIRB-published average cost of a lost time claim in New York is $61,700, which is nearly 30% higher than NCCI's all-state average. But this is not even at a final cost basis. When Oliver Wyman's Lefkowitz analyzed New York's data and projected to ultimate, the 2008 figure was $73,000, making it one of the highest in the nation. And he projects 2012's ultimate cost to be about $100,000. Wow! (Oliver Wyman's and Lefkowitz's analysis of New York's costs and trends) (PDF).

Employer Assessments
Then there are the employer assessments, and there are five of them. We'll just mention the big three, and look at them relative to indemnity dollars paid. These include:

The slowly winding down Special Disability Fund (the SDF is New York's version of the 2nd Injury Fund), currently assessed at 21.8%

The Reopened Case Fund, which since reform has grown from 3.5% to 13%

The funding of the Workers' Compensation Board at 6.5% (not to be confused with the New York Compensation Insurance Rating Board).

Taken together, in 2012, New York's assessments equate to 51% of every indemnity dollar paid in the state, or about 21% of premium. New York's self-insured employers are assessed based on indemnity dollars paid. Employers purchasing insurance are assessed based on premium. Either way, no employer can escape from these extraordinarily large additional charges. The hope of the 2007 reform was that, by closing down the SDF, costs would decline significantly, but that hasn't happened yet, and it won't for a few more years. Meanwhile, New York's employers are stuck with the highest claim costs and the highest assessments in the nation.

Next, one of the major pieces of the 2007 reform was the elimination of lifetime benefits for permanent partial disabilities. These were to be capped at 10 years, which, on its face, could save significant money for the system. However, there is what is called a "hardship" provision as part of the 2007 reform, open to claimants with at least an 80% impairment rating. They can appeal the 10 year cap based on hardship, and it's not a wild stretch to suggest that the Board will approve a majority of these appeals, leading to lifetime benefits for the most seriously impaired and much less cost saving than the reform predicted.

So, back to the NYCIRB's 11.5% loss cost increase request. Built into the filing was a somewhat unusual qualitative adjustment downward because the Rating Board believed, without stipulating evidence, that New York's insurance carriers were over-reserving lost time claims. Without that highly questionable downward adjustment Mr. Lefkowitz wrote that the increase would have been not 11.5%, but 28%.

With the now 0.0% rate increase, Lefkowitz and Oliver Wyman contend that costs in New York today are just slightly less than costs prior to reform, before consideration of assessments. With consideration of assessments, which have grown from about 30% of every indemnity dollar paid in 2007 to over 50% of every indemnity dollar paid in 2012, workers compensation costs in New York today are even greater than they were prior to the 2007 law change. He compares this with post reform costs in other highly expensive states, such as Florida and California. Florida's reforms have decreased costs by about 60%, California's by 66% (in fact, California's costs are at a level not seen since 1999). However, Florida, California and other reform states will have to go some to beat the decline in Massachusetts, where, due to reforms enacted in 1992, rates are now equal to what they were in the mid-1980s.

July 12, 2012

The drum that our colleague Joe Paduda has been beating for several years - the outrageous cost of repackaged drugs in Florida - appears to be resonating. This esoteric little nook and cranny of workers comp that is costing employers millions across many states would normally not attract much attention in mainstream media - heck, even a lot of grizzled workers comp vets weren't conversant with the practice or the potential adverse affect on costs. But yesterday, the issue made the business section of the New York Times in an article by Barry Meier and Katie Thomas, Insurers Pay Big Markups as Doctors Dispense Drugs. They sum up the crux of the matter: "At a time of soaring health care bills, experts say that doctors, middlemen and drug distributors are adding hundreds of millions of dollars annually to the costs borne by taxpayers, insurance companies and employers through the practice of physician dispensing." The article goes on to note that, "The practice has become so profitable that private equity firms are buying stakes in the businesses, and political lobbying over the issue is fierce."

Florida and the case of Automated HealthCare Solutions are used as examples in the article. We've leave you to follow the excellent job the reporters do in outlining the issue, tracking down connections, and showing how a recent legislative attempt to close this costly loophole was squelched. Alan Hays, the Republican state senator in Florida who introduced the defeated bill said that, "The strategy of the people that were opposed to this bill was to put the right amount of dollars in the right hands and get the bill blocked," he said. "And they were successful in doing that." That defeat is costing employers and taxpayers some $62 million, according to the state's insurance commissioner.

Don't miss the accompanying infographic, Paying Much More in the Doctor's Office. Also note the 424 comments to the article, which we are still perusing at this time - it's not often that a detailed workers' comp issue garners that much attention in the so-called mainstream press.

We give a big tip of the hat to Paduda, who has posted on the Florida repackaging issue repeatedly. going back several years, despite some personal jeopardy in the form of a threatened lawsuit, later dismissed by a federal judge.

How Connecticut is dealing with Physician Drug Repackaging

In February, Paduda posted that physician dispensing was coming to Connecticut and urged his readers to contact regulators. At Evidence Based blog, Michael Gavin posts an update: Connecticut Gets Drug Repackaging Right: Removing the Financial Incentive. Interestingly, this was done via a rule change rather than a statutory change. Plus, it does not ban the practice of physician dispensing, and it even allows a reasonable administrative fee. Gavin suggests that these central tenants of an effective regulatory approach to repackaged drugs might serve as a model for other states. Florida, take note!

July 11, 2012

Barton Rodr was a computer programmer for Yzer Inc, DBA Funnel Design Group in Oklahoma. When the yard crew taking care of Yzer's property quit, the company asked for volunteers and Rodr stepped forward. He and his son mowed the lawn and manicured the yard on successive Saturdays, in preparation for the festivities at Automobile Alley, the historic district of downtown Oklahoma City. Barton, a salaried employee, was not paid for the work; his son received $40.

On July 18, 2009, Rodr was putting away the lawn mower when he suffered a heart attack. He was 36 at the time. A workers comp judge awarded him benefits, determining that the injury occurred in the course and scope of employment. A three-judge panel affirmed, but the OK Court of Civil Appeals reversed, opining that Rodr's lawn work bore no relation to his primary job as a programmer.

The OK Supreme Court has ruled in favor of Rodr. Despite his performing volunteer work out of class and on the weekend, he was still an employee of Yzer, as the yard work met the primary test of employment: it furthered the interests of his employer.

In its defense, the company pointed out that the heart attack was caused by a pre-existing conditon: Rodr was overweight, a smoker, with a family history of heart problems. From the perspective of (very distant) consultants, we are tempted to ask: why did the company allow this employee to volunteer? Despite his relatively young age, he worked at a sedentary job and displayed risk factors that precluded his doing physical work. Speaking as a weekend mower, I can certify that the task is strenuous and noisy (less so for my neighbor who sits calmly on his riding mower, listening to music through noise-canceling headphones).

Volunteer vs. Employee
The court has ruled that an employee who volunteers is not a "volunteer." OK law defines a volunteer as "any other person providing or performing voluntary service who receives no wages for the services other than meals, ...therapy...or reimbursement for incidental expenses." An employee is not "any other person."

This is no small matter, for Rodr or for Yzer's workers comp insurer. The unfortunate Rodr is permanently and totally disabled. He is unlikely to work again. He is currently surviving on a mechanical heart and will need a transplant soon. Given Rodr's age and medical expenses of significant magnitude, this claim is likely to reach seven figures.

The lesson for employers is clear: saving a few bucks on physically demanding jobs is not worth the risk. An overweight smoker with a family history of heart problems does not belong within ten feet of a lawnmower. When your lawn crew quits, just go find another one.

Thanks to WorkCompCentral (subscription required) for the heads up on this case.

June 25, 2012

Kelly Taylor worked as an accountant for Community Health Partners (CHP) in Montana. On her way out for lunch in May 2009, she slipped on the stairs and landed on her tailbone. Her primary caregiver, Rebecca Hintze, worked for the same employer and provided medical advice soon after the injury. The claim was accepted by the Montana State Fund. Taylor suffered from pain off and on over the following months, using up her sick leave in a random succession of 1-3 day episodes. She did not seek comp indemnity for these incidents as she mistakenly thought comp required 4 consecutive lost days.

Over a year later, in September of 2010, Taylor was sitting on a couch at home. She put her foot on her coffee table and bent over to paint her toenails. When she finished, she tried to stand up, but immediately had difficulty, experiencing extreme pain in her back and down the front of her leg. In the following weeks, she experienced this sharp pain two more times, once after stubbing her toe on a rug at CHP and again when she was scooping out cat litter. (For all the severity of the injury, this case is sublimely prosaic in terms of risk.)

Because of the long gap between indemnity payments, and because an IME found that the herniated disc following the pedicure was a new injury and not a recurrence of the old one, the claim was denied. Taylor appealed, and the case came before the estimable Judge John Jeremiah Shea, whom we have encountered a couple of times in the past: in the notorious "pot smoking with bears" incident, and in another complicated claim involving a non-compensable back injury.

Dispensing Dispassionate Justice
Judge Shea appears to be a relentless seeker of fact and a dispassionate purveyor of justice. While he praises both the IME doctor (for reasonably concluding that the pedicure incident involved a new injury) and the claims adjuster (for reasonably denying benefits), he over-ruled the denial and reinstated the benefits. He found continuity in the documented self-treatment and in the somewhat informal, ongoing treatment provided by Rebecca Hintze. While the IME doctor had stronger credentials and a longer track record, Hintze had "substantially more opportunities to observe and talk with Taylor about her injury in both formal appointments and in informal workplace conversations."

He concluded that the pedicure injury was an aggravation of the back injury suffered over a year prior. At the same time, he denied an award for attorney's fees to Taylor, as he found that in denying the claim, the adjuster had acted reasonably.

All of which might appear to be much ado about not much, but in the intricate and ever-evolving world of comp, this case embodies a core value of the system: the relentless effort to determine whether any given injury occurred "in the course and scope of employment." Judge Shea, connecting the dots as methodically as a detective, concludes that the pedicure injury was an extension of the original fall. While the ruling itself can be questioned, Judge Shea's method and discipline are beyond reproach .

June 19, 2012

We live in the digital age, with all its conveniences and consequences. It would be hard to imagine a law requiring that all telephone calls be routed through live operators, or limiting maps to those that can be purchased at your neighborhood gas station. But each technological innovation creates a few new jobs and, seemingly, the loss of many others. Which brings us to the continued - and mandated - use of stenographers in virtually every workers comp claim filed in New York.

Senator Diane Savino (D-Staten Island) has filed S. 4112, which would certainly help the employment prospects of stenographers in the Empire state. Following an aborted effort by the NY workers comp board to test the use of digital recording in a few of the 300,000 or so annual workers comp hearings, Savino wants to ban digital recording from any comp hearing and require stenographic reports as the sole recognized form of documentation. Her bill, currently under consideration, would make stenographers a permanent fixture in workers comp for years to come.

Stenographers and their allies will argue that their presence improves the accuracy of court reporting. There are fewer "inaudibles" in their transcripts. But such accuracy comes at a substantial cost. The wages of a stenographer are in the $50-60K range, plus benefits. The cost of installing digital recording equipment in a courtroom runs less than $20,000, and once installed, the cost of maintenance is minimal. The trade off becomes even more reasonable when you consider that the New York system requires an unprecedented number of hearings for each and every workers comp claim.

In contrast to virtually every other non-monopolistic jurisdiction, New York insurers and TPAs are not allowed to make routine, unilateral changes in the status of any claim. A change in claim status requires a hearing, in front of a judge, complete with legal representation on both sides and a stenographer. This is enormously redundant and, in a word, non-sensical. It is also the root of New York's highest-in-the-country, soon-to-go- higher administrative costs. On a per capita basis, New York has more judges, more bureaucrats, more hearings, more paper flow - and more stenographers - than any other competitive state.

No Easy Answers
The fundamental goals of reasonable reform in New York can be easily stated: improve benefits for injured workers and lower the exorbitant cost of insurance for employers. It is not difficult to imagine how this can be done: simply look at the way most other competitive states manage workers comp claims. New York would have to streamline its entire system: instead of operating like a monopolistic state, micro-managing every claim, New York could empower insurers and TPAs to manage claims as skillfully and independently as they do in other states; by doing away with unnecessary hearings and hugely redundant reviews of literally millions of forms, New York could substantially reduce staffing levels at the Workers Comp Board.

But efficiency comes at a cost. One person's cost savings is another's job loss. These needed reforms would eliminate many, many jobs - and in doing so, would throw hundreds of loyal workers into the already burgeoning unemployment lines. In this one small example, the elimination of stenographers from hearings would lower administrative costs, even as it would increase the unemployment of people with potentially obsolete skills. This is not an easy trade off, but a necessary one.

At some point, New York has to look at the big picture: workers comp is way too expensive, even though the benefits, for the most part, are mediocre. Every adjustment to the current statute, every administrative decision, should pass through a single filter: does this improve the benefits to injured workers and does it reduce the cost to employers? When you run Senator Savino's S. 4112 through this filter, it's not part of the solution, but just another clog in an already overloaded drain.

June 15, 2012

Wallace Weatherholt, AKA Captain Wally, was leading a family on an air-boat tour of the Everglades. To liven things up, the 63 year old captain apparently dangled some food over the side of the boat. An alligator obligingly leapt out of the water to consume the (illegal) snack and took off Wally's hand in the process. To the gator, the hand was part of the snack - and who could argue with that? Unfortunately for the gator, authorities killed it to retrieve the hand, although doctors were unable to reattach it.

We will not try to determine which creature acted with greater stupidity, although it's clear that the gator did only what gators have done for millions of years, while Wally did what thinking humans are not supposed to do. (Feeding gators is illegal - a misdemeanor - for somewhat obvious reasons.)

Wilful Intent?
The issue here is compensability: Captain Wally was clearly injured "in the course and scope of employment" - but is this a compensable injury? Did Captain Wally cross the line to "wilful intent" and thus disqualify himself from workers comp benefits (which, by the way, will be substantial, given the severity of the injury and the permanent loss of a hand)?

This might sound like "wilful intent" but it may well prove compensable. The issues for review include:
- Did Captain Wally's employer have a written policy against feeding alligators?
- Was the enforcement documented? Were their punitive consequences for the act?
- Has Captain Wally's unsafe practice been observed in the past and if so, what was done about it?

If Captain Wally's employer turned a blind eye to this practice, which, parenthetically, was good for business, the employer and the insurer will own the injury. Unless the prohibition is an explicit condition of employment, in all likelihood the employer will be on the hook for the loss. As for Captain Wally, he, too, will be on a hook of a different sort: he will have a permanent reminder of his ill-advised and illegal feeding of a primitive creature who was minding his own business until an attractive snack caught his impassive eye. I do feel for Captain Wally, but hands down, my greater sympathies are with the gator.

June 11, 2012

The immortal Mae West once said that "too much of a good thing can be wonderful." When it comes to pain relievers, however, too much of a good thing can kill you. Which brings us to the sad saga of Anthony Sapko, who died of an accidental prescription drug overdose in August of 2006. Sapko worked as a policeman for 21 years in New Haven, CT, and went on in the mid-1990s to become a state corrections officer. Beginning in 1999, he was treated for depression. He suffered four work-related injuries while working in corrections, the last being a back problem from which he never returned to work.

Sapko was treated with a cornucopia of medications: oxycodone, Zanaflex, Kadian, Celebrex, Roxicodone, Avinza, Lidoderm patches and Duragesic. When his depression deepened in 2006, his psychiatrist prescribed Seroquel. Two weeks later, Sapko was dead. The autopsy revealed a level of oxycodone 20 times normal, and of Seroquel at 5 times normal. The combination of the two over-consumed drugs proved both toxic and fatal.

Suicidal Intent Vs. Accident
Sapko's widow filed for workers compensation death benefits. The claim was denied at the Commission level and again at the Appeals Court level. Sapko's widow argued that the death was directly related to his workplace injuries, but the court found a disconnect: this was not a suicide (where such a link might be established), but an accidental overdose.

In a December 2011 blog, we made note of two similar cases: a compensable case in Tennessee and a denied case in Ohio. Fatal overdoses, in other words, may or may not be compensable, depending upon the specific circumstances and state-based precedents. But the over-arching issues are clear: the abuse of prescription narcotics has reached epidemic proportions in workers comp; some individuals are unable to properly self-manage the use of these medications; and doctors are all-too-too willing to prescribe very powerful drugs to alleviate pain.

Workers compensation is endlessly fascinating because it inevitably brings together pain (from workplace injury) and pain suppression (far too often, opioids). In Sapko's foreshortened life, the combination of medications was toxic. In workers comp as a whole, the mixture of pain and drugs is proving to be a formidable problem.

No Will, No Way?
One of the interesting sidebars in this case is the concept of wilful misconduct: when an injured worker abuses prescription medication, is this a "serious and wilful" action that precludes compensability? Or is the pain so consuming and the drugs so powerfully addicting, that the concept of "wilful" disappears in a drug-induced haze? There are no simple answers. There is undoubtedly some link between Sapko's depression, the work he performed and the injuries he suffered. But in the world of comp these links must be explicit and, unlike life itself, unambiguous. It would require a novelist to reveal the connections. Unfortunately for Sapko's widow and children, the commissioners and judges in charge are simply not in a position to craft that kind of narrative.

May 22, 2012

When you're looking for ethically-challenged business practices, Florida is usually a good place to begin. The latest kerfluffle involves a toxic combination of very high deductibles for workers comp insurance and employee leasing companies. Oklahoma based Park Avenue Property and Casualty Insurance sold policies with deductibles as high as $1 million to PEOs. Think about that for a moment: a million dollar deductible is virtually self-insurance, as very few claims break that formidable barrier. Park Avenue, along with its successor companies, sold these policies to employee leasing companies, who in turn passed the coverage through to their client companies. With such a huge deductible, the coverage must have been relatively inexpensive compared to standard market rates.

Under large deductible programs, the insurance company pays all the bills and then seeks reimbursement from the client company, up to the deductible amount. It's not hard to figure out the flaw in this business model: client companies will welcome the discounted premiums, but when it comes time to pay back the insurer for paid losses, they will be unable to cut the checks. Given the complete absence of regulatory-mandated collateralization for the claims liability, there is no way the insurer will be reimbursed for large loss claims.

That's where the three-card Monte comes in: the insurer wrote these policies knowing full well that the deductibles would never be paid. That's why Park Avenue morphed into Pegasus Insurance, which morphed into Southern Eagle Insurance, which flies off into the pastel sunset of bankruptcy.

Gaming Risk Transfer
The cards have been moved around at blinding speed, but who ends up paying? Once again, those who played by the rules will have to pay for those who didn't. (For a more egregious example of punishing the innocent, see our blogs on the New York Trusts.) Policy holders in Florida will be charged somewhere between 2% and 3.5% of premiums to cover the $100 million plus of losses.

In the WorkComp Central article by Jim Sams (subscription required), Paul Hughes, CEO of Risk Transfer Company, which markets insurance to PEOs, complains that singling out the PEO industry is unfair. The state should never have allowed Park Avenue and its winged successors to write insurance, as they were clearly incapable of assuming the risk. True enough, but even Hughes would have to admit that the PEO industry offered a ripe venue for the scam: individually, PEO clients would never have qualified for high deductible coverage, but somehow, under the collective umbrella of a PEO, they did.

Meanwhile, PEOs are being sued for failing to reimburse the claims payments of Park Avenue and its successors. After the PEOs lose these cases, they will seek payment from their clients, who are unlikely to have the ability to pay anywhere near what is owed. The litigation will go on for a long time, but the bottom line is simple: risk transfer cannot exist where none of the parties can cover the exposure. That isn't risk transfer: it's a shell game, where those who did not play are left holding the bag.

Follow Up - June 7, 2012
After posting this blog, I received a call from Paul Hughes, CEO of Risk Transfer in Florida, who is quoted above. While not contesting the premise that large deductibles are poorly managed in Florida (and elsewhere), he believes that I unfairly singled out PEOs in the blog. The fundamental issue is the failure of the state to adequately regulate and oversee large deductible programs. I agree.

Please take a few moments to read Paul's response, which employs the useful metaphor of a casino for the risk transfer industry:

The core issue to me is the role of the regulator versus the business owner in the management of the "casino" (insurance marketplace). That is one of the parts of Jon's article in Workers Comp Insider that blurs the line a bit on what the PEO's role is within the casino and whose job it is to set the rules. The casino is the State as they certify the dealers to play workers' compensation (Carriers, MGU's, MGA's, Agents and Brokers) and the State also certifies that the players are credible (not convicted of insurance fraud) and can pay/play by the rules of the house. The rules are set by the house and the games all require public filings - ability to write workers' compensation (certificate of authority), ability to offer a large deductible plan (large deductible filings), agent license, agency license, adjusters license and any other deviation from usual business practices (like the allegations that one now defunct insurance carrier illegally charged surplus notes to desperate PEO's in the hardest market the industry has ever seen). The "three-card monte" that Jon alludes to in this article is managed not by the dealers (carriers), but by the house (state). Would a real life casino consider it prudent to allow one of their dealers to expose 20% of their $5m in surplus through high deductibles sold to PEO's with minimal financial underwriting and inadequate collateralization? Would any casino write harder to place (severity-driven) clients to include USL&H, roofers etc with the minimum amount of surplus needed to even operate a carrier...? Of course not. These "big boy" bets would never be allowed in Vegas without the pockets being deep enough to cover the losses.

The state argued, in part, that the program was voluntary: people don't have to do it, they'll just lose their jobs if they don't. Some definition of "voluntary"!

There are times and circumstances where drug testing is useful and necessary. For jobs involving public safety and genuine risk, drug testing should be mandated. But courts remain sensitive to the constitutionally guaranteed right to privacy. Under the "probable cause" standard, courts look for specific risks and exposures, not for blanket policies that cover everyone. There should be evidence of a problem, possible harm if drug abuse takes place and an over-riding safety interest. This may well describe the situation of a police officer or firefighter, but not a clerk in the Registry of Motor Vehicles.
Insubstantial and Speculative Risk
Judge Ungaro pointed out the fundamental flaw of Scott's executive order: it infringes privacy interests in pursuit of a public interest which is both insubstantial and speculative. She writes that "the proffered special need for drug testing must be substantial- important enough to override the individual's acknowledged privacy interest, sufficiently vital to suppress the Fourth Amendment's normal requirement of individualized suspicion."

By trying to lump all state employees into one big drug testing net, Governor Scott displays his contempt for government and the people who carry out its work. Beyond that, his drug testing obsession runs contrary to a fundamental premise in the Bill of Rights. Someone needs to remind the governor that his job is to protect the rights of every Florida citizen, not compromise these rights in the interests of punitive and ill-conceived policies.

A Random Note on the Original "Great Scott"
The origin of the phrase "Great Scott" is unclear, but Wikipedia surmises that the reference is to U.S. Army, General Winfield Scott, known to his troops as Old Fuss and Feathers. He weighed 300 pounds in his later years and was too fat to ride a horse.

April 25, 2012

We thought we had heard the last of the bizarre Virginia workers comp statute that denied benefits to workers who suffered brain injuries: under the old statute, if a worker survived an accident but was unable to testify about the incident, no benefits were to be paid. We blogged two cases where the injuries were clearly work related, but where the testimony of the worker was not available. The claims were denied.

Last year the legislature revised the statute to read in part:

In any claim for compensation where the employee is physically or mentally unable to testify as confirmed by competent medical evidence and where there is unrebutted prima facie evidence that indicates the injury was work-related, it should be presumed in the absence of a preponderance of evidence to the contrary that the injury was work related.

Reporter Dan Casey of the Roanoke News is on the case again: With the new statute's protections in place, a roofer named Herman Blair fell from a ladder and suffered multiple skull fractures. He filed a claim for indemnity and $350K in medical benefits. When he appeared for his workers comp hearing, he had no memory of the incident, but he was able to state his name and talk about other aspects of his life. On the basis of his ability to talk, Deputy Commissioner Phillip Burchett ruled that the injury was not compensable. Despite testimony from a co-worker, who heard a noise and saw Blair fall, Blair's ability to speak nullified the presumption in the revised statute. Burchett writes:

The only thing we can determine is that the claimant was on the roof some several feet above the ground and he fell; however, that in and of itself does not establish that the fall arose out of the employment.

Commissioner Burchett has set a very high standard, indeed. The man is on a roof installing tile. He gets onto a ladder to descend, and ends up on the ground. What does Burchett think he was doing - texting? surfing the net? In the commissioner's interpretation, if Blair had ended up in a coma, he would have had a compensable claim. But because he was conscious and able to talk, the claim had to be denied. [Burchett's nitpicking ruling can be found at WorkCompCentral, subscription required.]

The Fix is Not Quite In
There was an effort to amend the statute to include a presumption for workers able to testify about some things but not "about the circumstances of the accident," but the usual suspects (business and insurance advocates) pushed back by saying that this might open the door to abuse, with workers deliberately falling silent on the circumstances of their injuries. This, of course, is reminiscent of the original fear that workers would fake brain injuries. Sigh.

At some point Virginia will get this right and Herman Blair, having suffered insult after injury, will eventually collect his benefits. This fiasco illustrates how hard it is to get the language of a statute just right. You fix one problem and another arises. The only thing lacking in all of this is common sense and a little dignity: it should not require a legislative committee to determine that Herman Blair was injured on the job and is entitled to the life-enhancing benefits of the workers comp system.

April 23, 2012

When looking for cutting edge activities in workers comp abuse, it's a good idea to start in California, where key stakeholders occasionally function like pirates in the Gulf of Aden. We have frequently focused on the burgeoning costs of opioids in the workers comp system. As we learned at the Workers Comp Research Institute conference last November, too many doctors who prescribe opioids have no idea what they are doing, no idea how to manage opioid-based treatment and no clue about the potential for harm.

In the entrepreneurial free-for-all that is California, we see the latest trend in opioid abuse: turning the "best practice" of drug testing into an opportunity to milk the system. (The details are available in Greg Jones's article at WorkComp Central - subscription required.)

Here's how it works: doctors who tend to over-prescribe opioids are jumping on the drug testing bandwagon: either through their own testing, or through contracted services, they are able to parlay a simple $200 drug test into a bill for $1,700 or even $3,000. The labs are playing with billing codes, performing the less expensive qualitative tests but charging for the more expensive quantitative tests. It's a clever scam: first over-prescribe, then drug test and over-bill.

The WorkCompCentral article quotes Howard Appel, president of Millennium Laboratories of San Diego: "I'm offended when workers' comp is paying $3,000 for a drug test that cost $200." Appel's company operates under a "responsibility pledge" where explicit ethical standards are used for drug testing and billing.

Genuine Best Practices
We remind Insider readers of the best practices that should accompany virtually any prescription for opioids:

1. Above all, use opioids sparingly; most prescriptions for opioids in the comp system are unnecessary, ill-advised and poorly managed.
2. Virtually all injured workers prescribed opioids should be evaluated for dependency issues prior to beginning an opioid regimen, drug tested prior to receiving opioids and throughout the course of treatment. Without these pre-conditions, opioid use is full of uncertainty and fraught with danger.
3. Ideally, opioids should come with a written contract and a User's Manual. Workers should be tested on their knowledge of the benefits and the risks.

Note that drug testing is a necessary component of the treatment protocol. The problem in California - and probably elsewhere - is that drug testing is of little value where opioids have been mis-prescribed in the first place. Under best practices, opioids are a last resort, rarely used and carefully managed. Under California scheming, they are over-prescribed, over-monitored and over-billed. All of which goes to show that you don't need a fishing boat and a few automatic rifles to become a pirate. A nice white coat and a plastic cup can work just as well.

April 18, 2012

We have been following the fate of self insurance groups (SIGs) in New York, where the innocent pay for the sins of the guilty and where what is legal is by no means fair. We read in WorkCompCentral (subscription required) that an appeal to over-rule the onerous assessments imposed on the trusts who played by the rules, to cover the liabilities of trusts who did not, has been rejected by the U.S. Supreme Court. [The Insider is quoted at length in the article.] Had employers known just how expansive the risks of SIG participation were, they would likely have chosen to purchase conventional insurance.

The appellate court wrote that "a fair reading of [comp law] within the context of the related provisions and the legislative history, leads to the conclusion that group self insurers were intended to be included among those to be assessed to provide the funds to cover the defaults of all private self-insurers, including groups."

The court went on to say that the liability of individual employers "is proportional to their role as self-insurers within the workers' compensation system."

The New York appellate court has expanded the concept of joint and several liability way beyond the members of a given trust, including not only all those who participate in self insurance groups, but virtually every self insurer in the state. There is no way a company can reasonably assess the scope of this risk. Why would anyone put their trust in trusts?

The Law of Small Numbers
The problem for the dwindling number of employers who participate in New York SIGs is the inverse of the law of large numbers: because their numbers are relatively small (compared to the total number of employers and comp premium in the state), they own a disproportionately large share of the open-ended liabilities generated by the failed trusts. Given the now-established legality of the assessments, and given the impossibility of verifying the viability of every self-insured risk, New York has basically eliminated self insurance as an option. That's too bad, especially in the context of the state's relatively high costs for comp.

Perhaps the state's 800,000 employers could push for fundamental changes in the way workers compensation is managed: they could argue that the system is too complex and too costly for employers, even as the benefits for injured workers are way too low. As a group, they would have the law of large numbers in their favor, which is certainly more than can be said for the hapless remnants of the state's self insurance groups.

NOTE: For access to the Insider's numerous blogs in this issue, enter "New York trusts" in the search box.

April 2, 2012

In the 2010 Oregon rankings for the cost of comp insurance, New York comes in 13th, with an average rate of $2.34 per $100 of payroll. That does not sound too bad, until you factor in the extraordinary 20.2 percent assessment that is tacked onto premiums. ** This assessment is double that of the nearest state (Minnesota at 8.9 percent) and nearly five times the average among states. When you combine the already high rates for coverage with the assessment, New York ends up near top of high cost states.

Quoting research from the Workers Comp Policy Institute (WCPI), Risk & Insurance Magazine identifies three major components in the assessment:
- the Second Injury Fund, accounting for half the total
- the Reopened Case Fund that covers claims reopened after more than 7 years
- the Workers Compensation Board, which oversees comp in NY

Recent reforms may eventually reduce the impact of the first two cost drivers, but there is no end in sight for the third. New York operates a huge - and largely redundant - bureaucracy to administer comp claims. Where other states empower insurance companies to make decisions on individual claims, with the state involved only in disputes, New York is involved in every step of every claim. The Board has over 300,000 hearings per year, overseen by 97 judges. The system generates 31 million forms annually, all of which are scanned and saved! Stenographers document every proceeding: a well-intentioned effort to pilot the cost-saving use of video recording devices met with ferocious opposition in the state legislature. The Board employs over 1,300 people; as a point of reference, the Massachusetts DIA, in a state with one third the number of workers, has only 167 employees.

The high cost of insurance might be more tolerable if injured workers were the primary beneficiaries, but this is not the case. The maximum weekly benefit in New York is only $740, which might support a frugal worker in upstate New York, but it will not buy much in the five boroughs. By comparison, Illinois - ranked number 3 for cost - has a maximum wage benefit of $1,288, while MA, ranked 46th, pays up to $1,136.00.

New York is stuck in an archaic system that is fiercely defended by the stakeholders who benefit from its inefficiencies. If only this same energy and commitment were devoted to the protection of disabled workers in the Empire State. Surely, that would be a system worth emulating.

**We heard from our friends involved with the Oregon ranking study, who provided the following clarification:

The Oregon WC Rate Ranking study does include state assessment rates in our index rate computation. We ask our state respondents to provide the rates that are assessed as a percentage of premiums. The NY rating bureau provided us that information in 2010, and there was a 14.2% factor included in the study index rate for NY. Apparently the rate has increased since that time, and the 2012 index rates would incorporate that information in our next study, due out this fall.

Unfortunately assessments are an area that does not lend itself to straightforward comparison. States use different terminology (assessment , surcharge, tax, etc), have different bases for assessment, and fund different functions through this mechanism. So there is plenty of room for different interpretations when looking at the data, depending on where the lines are drawn for inclusion or exclusion.

March 21, 2012

The Insider does not normally think of state workers comp insurance funds as hubs of criminal activity, but then again, we haven't been to Scranton lately. James McDonnell, 53, is a supervisor in the State Workers' Insurance Fund (SWIF). He makes about $51,000 a year - at least, that's his declared income. He has apparently been pulling in a whole lot more than that. He was arrested this week for running a kickback scheme involving premium discounts for Pennsylvania employers. In exchange for (undocumented) discounts in premiums owed, McDonnell secured cash kickbacks of one third to one half the discount. Between 1999 and 2011, McDonnell and his wife pulled in at least $80,000.

WorkCompCentral (subscription required) offers additional background on this case, including PDFs of the criminal indictment. McDonnell offered premium discounts to individual employers, in one case, a roofer, whose premiums, instead of going up $50K, came down $10K. He then insisted that the roofer join one of the three staffing firms with whom he did business. In exchange for steering clients their way, these firms paid McDonnell a relatively modest 1% commission, in addition to paying him substantial cash kickbacks on the premium discounts. In honor of family values, McDonnell's wife was given several jobs which apparently did not require that she perform any work.

Kickbacks and Harassment
McDonnell must have been a busy man, systematically exploiting his position with SWIF, but he allegedly found time to harass a fellow fund employee. Last September he was accused of "making sexual advances on the employee, identified only as Jane Doe, such as asking her to lick a piece of Twizzlers candy taken from her work desk before he ate it and telling her to bend over and pick up a time sheet he dropped to the ground." Would you be shocked to learn that the fund did not take these accusations seriously?

There may well be slow days at a typical state fund, but McDonnell sure knew how to make time fly. That skill will come in handy when and if he finds himself doing time in a bureaucracy of a different sort altogether.

Comp fraud takes many forms and encompasses opportunities for each and every stakeholder in the system: doctors, lawyers, insurers, state bureaucrats, business people, workers and, I suppose, even consultants. Today's little saga of greed arises from the midst of a state bureaucracy. But no matter where the crime originates, the result is the same: higher costs for the vast majority of people who play by the rules.

February 27, 2012

Earlier this month, Julie Ferguson blogged the hazards of unsafe trenches. Today we examine the consequences of unsafe trenching for Oscar Avalos, a laborer for a Texas-based company involved in the installation of sewer pipes. The good news for Oscar is that a jury awarded him $4.5 million for the general contractor's negligence in supervising his jobsite; a court of appeals has upheld the award. The bad news, of course, is that Avalos will never work again.

Nowak Construction, a Kansas-based company, was hired by the city of El Paso, Texas, to install new sewer lines. James Heiman, Nowak's onsite superintendent, was neither an engineer nor safety expert. In their plans submitted to the city, Nowak proposed using trench boxes for safety, a proven means of preventing trench collapse. Unfortunately, when they hired Rocking Q as a subcontractor, they did not require that Rocking Q adhere to the trench box procedure. Instead, they deferred to Rocking Q's decision to use "sheet piling" - a form of bracing in which steel plates are driven into the ground with a backhoe and then secured with chains. This alternative plan was never submitted to the city for approval.

Thus we have a jobsite where digging and maintaining trenches are a constant activity, where the original safety plan has been scrapped, and where an alternative plan is in effect. Rocking Q did not use any cross-bracing to support the street plates. Rocking Q's owner testified that no one from Nowak told him that this was unsafe or asked him to use cross-bracing. Further, an engineer representing the City visited the work site daily and never criticized the trench safety system (in itself fodder for another blog posting).

Water-soaked Trenches
On the evening of September 13, 2006, 1.15 inches of rain fell within a two-hour period. At about 7:30 the next morning, site super Heiman went to the area where the Rocking Q crew was working. He then went to work about 150-feet away, within sight of the Rocking Q crew.

Here comes the astonishing part: Heiman testified that he returned to the area at around 12:30 or 1 p.m. and saw that the street plates were not anchored in any way - they had neither chains nor cross-bracing. Heiman did not mention to anyone that he thought the site was unsafe. Just two hours later, the dirt behind a street plate collapsed, causing the plate to fall on Avalos while he was working in a trench. The unanchored plates, intended as safety barriers, were transformed by unstable earth into moving objects with catastrophic impact. Avalos was totally disabled in the accident.

Initially, Avalos's injuries were covered by workers comp. But he also sued the GC Nowak for negligence. In the course of the testimony, Novak's lack of safety oversight was exposed:

Heiman testified that the street plates were tied back with a chain. Heiman had never before worked on a job in which street plates were used for trench safety. He had some initial concerns about [the subcontractor's] system because no structural supports were used for the street plates. According to Heiman, [the sub] told him "that's the way they do it in Texas." Heiman called Mr. Nowak to report his concerns, but he also told Mr. Nowak that [the sub]'s system seemed to be working. Mr. Nowak spoke with [the sub], who assured him that the plates were being hammered into the ground properly and that a chain was being used to anchor the plates. Mr. Nowak then approved the use of street plates for trench safety.

By giving a verbal OK to the revised trench safety plan, and by not seeking El Paso's approval for the change, Nowak assumed liability for the consequences. When the trench failed, Nowak became the responsible third party for Avalos to sue.

The Eyes of a Stranger
One of the intriguing aspects of this case is the way everyone overlooked an obvious hazard, including the city's own site inspector. Trenches were routinely secured by plates driven into the ground. There were no cross braces - indeed, no requisite trench boxes - in view. Based upon the testimony, it appears that chains to secure the plates were not used consistently.

Because we are consultants, LynchRyan always has the benefit of seeing job sites for the first time. We view the work being performed with the eyes of a stranger, because we are, literally, strangers. As part of our approach to safety, we encourage companies to look at the work being done as if they had never seen it before. Routine fosters indifference. I once toured a large warehouse with the company safety director. We came across an employee awkwardly pulling a bulky box from a shelf above his head; a rolling ladder stood a few feet away. What I saw was a very unsafe practice which could easily have been mitigated by using the ladder; what the safety director saw was his buddy, Ralph. He waved to Ralph and we moved on.

Everyone knows that trenches are dangerous. As OSHA frequently notes, "an unprotected trench is an open grave." Yet even in companies whose only work involves trenches, the hazards persist. Despite OSHA's videos, PowerPoints, brochures, and posters highlighting trench hazards - along with well-publicized fines for failure to comply - bad safety practices in trenching persist. In losing this liability case, Nowak has probably learned a painful lesson. But I shudder to think that big time lawsuits are the only effective way to motivate management to take trench risks seriously.

February 24, 2012

You have to feel sorry for Erik Martin. He went to work for Quick Chek Corp in 1999 as an assistant store manager. He was promoted to store manager in the summer of 2000. He was diagnosed with Parkinson's disease that same year. After informing his supervisor of his diagnosis, she advised him to keep his illness "hush, hush." Martin complied, and never mentioned his illness to the company's HR director. Martin missed work in 2004 and 2006 due to two mini-strokes and took a two-week leave of absence in 2007 because of depression. Despite his formidable physical difficulties - unrelated to work - he returned to work as soon as he was able.

In March 2008, Martin requested and received a demotion because his medical condition, combined with the lack of an assistant manager, precluded him from satisfying his work obligations. Later that same month, Martin injured his back at work. He contacted his doctor, who instructed him to take a darvocet that was previously prescribed to Martin's mother-in-law. Martin visited the doctor the following day, at which time he was prescribed percocet to manage his pain.

Drug Policy
In keeping with company policy, Martin was drug tested two days after the injury. A few days later, he was contacted by the testing facility. They asked him to disclose the medications he was taking. He told them about his prescriptions, including the percocet, and also informed them about the darvocet he took on the day of the injury. Because he tested positive for darvocet without a prescription, the testing company reported a failed drug test and Quick Chek terminated Martin.

A reasonable person might think that Martin was in compliance with the company policy. He took a pill at the verbal direction of his doctor. Was this a "prescribed" medication? Well, that's where a problem arises.

The word "prescription" comes from the Latin "praescriptus" compounded from "prae", before + scribere, to write = to write before. Historically, a prescription was written before the drug was prepared and administered.

It appears that a "verbal prescription" is an oxymoron: if it isn't in writing, it isn't a prescription. [NOTE: the court ruling did not even address this issue.]

The HR director testified that his decision to terminate Martin was based on the failed drug test. He further testified that in his thirteen years managing human resources for Quick Chek, he never made an exception to the company's zero-tolerance drug abuse policy. The director also stated that he was not aware of Martin's Parkinson's disease until this litigation commenced.Thus Martin's termination was consistent with company policy. And in the view of the court, the termination was perfectly legal.

The court wrote:

Unquestionably, the company's drug policy was enforced in a harsh fashion against Martin. The company relied completely on the assessment of the testing company that Martin "failed" the drug test. Quick Chek operates in such a way as to delegate total discretion to interpret the drug test results to the testing company. Once deemed to have failed the drug test, an employee is terminated without exception with no apparent right of appeal. In Vargo v. National Exchange Carriers Assn., Inc., 376 N.J.Super. 364, 383 (App. Div. 2005), we held that a company need not investigate possible legal reasons for a positive drug test before taking action with regard to a prospective employee; nor should such a duty exist with respect to existing employees. NJLAD is not offended by a private company's lack of compassion in these circumstances.

Note how the court starts with a precedent involving a job applicant and then applies it to a loyal employee of long standing: "nor should such a duty exist with respect to existing employees." The court may not see any difference between an applicant and a loyal employee, but I do.

No Room for Compassion
The court "is not offended by a private company's lack of compassion." Well, I am. Zero tolerance policies back companies into a corner; their rigidity may eliminate the need for discretion, but in doing so, these policies also eliminate many good employees. A little discretion in the hands of good managers is a powerful tool toward building a positive work culture. By contrast, zero tolerance policies may provide an illusion of control over matters that are difficult to control, but they are not an effective way to run a company (or a school, for that matter). Indeed, the policy makes it difficult for the company to fulfill its promise as a great place to work:

Quick Chek is proud to be one of NJ's Best Places to Work! With 2,600 team members in over 120 stores, we strive to create a positive experience and fun environment where core values are nurtured, hard work is rewarded and leadership is cultivated.

I wonder what Erik Martin thinks of the company's "core values." When his illness prevented him from doing his job, he requested and was granted a demotion. When his illness prevented him from working, he took (unpaid) time off and focused on recovery. When he was injured at work, he followed his doctor's orders and his company's procedures. Martin's loyalty and perseverance are admirable qualities, but they did not buy him much in the corporate offices of Quick Chek or the courtrooms of New Jersey.

January 31, 2012

An open letter to the press, business community and people of North Dakota:

The authors of this letter are journalists, columnists, bloggers and content publishers for the workers' compensation industry across the United States. We are a politically and professionally diverse group. We do not agree on everything, yet find ourselves of one opinion on a highly critical matter. We are competitors who are now colleagues for a common cause; to bring light to a serious injustice being committed within your state.

The prosecution of Charles (Sandy) Blunt was, in our view, an outrageous and almost farcical event. It is, in the final analysis, a travesty that has damaged the national view of your state, hampered the operation of a State agency, and ruined the life of a good man wholly undeserving of such results.

Sandy Blunt was Director of North Dakota's Workforce Safety & Insurance from May of 2004 until December of 2007. He was, as you are likely aware, prosecuted by state authorities for "misspending government funds". Specifically, he was charged and convicted on two counts:

During his almost 4 year tenure his agency spent approximately $11,000 on employee incentive items, including flowers, trinkets, balloons, decorations and beverages for Workforce Safety and Insurance employee meetings, and on gift certificates and cards in small denominations for restaurants, stores and movie theaters. Blunt personally approved some of these expenditures. Others were made by managers as part of daily operations under his watch. Not a dime went into an employee's pocket, nor did Blunt personally benefit from any expenditure.

His agency paid $8,000 to an employee, David Spencer, for sick pay when he was not apparently sick, and it also failed to collect $7,000 from Spencer when he left prior to the end of his employment agreement. The $7000 was for moving expenses incurred that prosecutors felt Spencer owed the state. Blunt's position was that the agency was not entitled to collect these funds, since Spencer's departure was not voluntary.

All told, the state prosecuted Sandy Blunt, and he is now a convicted felon for "misspending" $26,000 of government money.

No one has ever alleged that Blunt personally benefited from any of these expenditures. Blunt was acting like other capable, ethical North Dakota executives ‐ in the best interest of customers and of the mission of his employer. In our industry it is considered a best practice to provide employees and supervisors with incentives. It is not frivolous, it's necessary, and what every employer should do.

The first of these two charges would be, to many people, laughable if it were not for the damaging consequences associated with them. The notion that buying inexpensive incentive items for your employees could result in a felony conviction is simply stunning. This would not be elevated to a criminal status in most states in the nation. The fact that it is in North Dakota should have a chilling effect on businesses looking to move there.

The second and more serious charge, involving the sick pay and moving expenses of employee Spencer, has been fatally undermined by the revelation that the prosecutor in the matter, Cynthia Feland, withheld critical evidence from the defense - evidence that largely clears Blunt in this area. A disciplinary panel for the North Dakota Supreme Court has found on November 7, 2011 that:

"Cynthia M. Feland did not disclose to Michael Hoffman, defense attorney for Charles Blunt, the Wahl memo, and other documents which were evidence or information known to the prosecutor that tended to negate the guilt of the accused or mitigate the offense."

Withholding of evidence by prosecutors is one of the most serious acts of prosecutorial misconduct in North Dakota and all other states. In recognition of this, the panel recommended Ms Feland's license to practice law be suspended. We urge that you read the entire report of the panel, including the penalties the board recommended be imposed on Ms. Feland. For the report, go here.

Had the prosecutor not withheld evidence, in all likelihood the case would never have come to trial, and the reputation of Blunt and the WSI would be free of taint. The evidence in question shows that WSI's auditor's own findings backed Blunt's position on payments related with Spencer. However, those findings were not made available to the defense, and the prosecutor was found to have allowed testimony to be given at the trial that directly conflicted with information she had. As we indicated, Feland, now a judge in your state, has been recommended for suspension and a fine over these findings.

Yet Sandy Blunt remains a convicted felon. His crime? Buying balloons, trinkets and $5 gift cards - for his employees, not for himself. For that, Blunt, who is married with two children, has had to spend half a decade, and untold thousands of dollars trying to clear his name.

Some of us have known Sandy for quite a while. Some have come to know him while learning of his situation. Others of us have never met Sandy, but recognize the tenuous nature of his treatment. Collectively we speak to thousands within our industry every day. Our opinions have been clear; this situation needs the light of truth shone brightly upon it. The time and resources expended prosecuting a man on such questionable grounds should be more closely examined, by the business community, workers compensation professionals and the media in North Dakota.

Sandy Blunt is a good and decent man. He deserves better. So, it would seem, do the people of North Dakota.

History and Ideology
First, a little background on California OSHA. In the 1970s, the state as big as a country implemented its own OSHA inspection program. In 1987 a Republican governor trimmed the budget by eliminating CAL/OSHA, leaving the feds to take over the program. Gee, guess how that worked out...Two years later, CA took back the program. Over the next few years, the legislation evolved, resulting eventually in a requirement that all CA employers implement an Injury and Illness Prevention Program (IIPP) with the following key elements:
- Identification of hazards and risks
- Training programs for employees in managing those risks
- Periodic hazard surveys to determine effectiveness of hazard mitigation
- Documentation of training and hazard surveys

IIPP being a state-sponsored program, state government had to train and disperse field inspectors to determine whether employers were in compliance. That raises two very big problems: first, the scale of the effort: with 700,000 employers in the state, inspectors can only perform about 8,000 inspections per year. Equally important, with limited time on site, inspectors lack the tools, training and time to measure the actual effectiveness of an employer's IIPP.

Elements in Good Safety Programs
IIPPs mandate that employers implement the key elements of good safety programs:
- Workers know the employer's point person for safety
- Workers know how to report hazards
- Workers with good safety records are rewarded
- workers with poor safety records are disciplined
- hazards and risks are analyzed on an ongoing basis
- identified hazards are mitigated in a timely manner
- training is ongoing

As any astute reader can surmise, there is a huge gap between developing a written program with the above elements and actually implementing it. A nice cottage industry arose in California, where employers could buy an IIPP program off the shelf - and promptly store the binder, unopened, on a shelf. A written program does not a safety program make.

Does the CAL/OSHA Program Work?
So what did the Rand researchers find? Does the CAL/OSHA program prevent injuries? Is it effective?

Well, sort of, kind of, not really, we're not sure...

By the time you sort through the caveats - the impact of an unstable economy, the under-reporting of injuries by small employers, the lack of specificity in inspection visits, etc - you have very little conclusive evidence one way or the other. When visiting employers for the first time, inspectors consistently found that they were out of compliance, lacking written plans and evidence of an effective safety program. When making a second visit, especially after an injury, the results improved; there is nothing better than a serious injury to revitalize a safety program. Alas, two years after an inspection, there is no measurable lasting benefit to the program. [It is important to note, however, that unionized workforces had a more sustained and effective focus on safety than non-union environments - fodder for the ideologues, for sure.]

The Role of Government in Safety
The Rand study raises a number of compelling issues and is well worth the reading. In the final analysis, the study points out the limits of any state intervention. To be sure, inspectors could spend more time on site; they could do more qualitative analysis of the written documentation and interview a good sample of the workers. But these steps would still likely result only in incremental and relatively minor improvements.

We would all probably agree that a commitment by a company's senior management is essential: safety must be a priority in all operations. We would also agree that the above key elements belong in any effective safety program. Finally, we all recognize that safety consciousness must be embedded into a company's standard operating procedures.But that's the ideal: what happens in the real world?

Where inspections reveal ineffective safety programs, where employers exploit workers and put them at risk, systematic fines and penalties are certainly in order. Such penalties are an effective means of getting an employer's attention. Once you have that attention, it is at least feasible that employers will see the benefits of making safety a priority and eliminating workplace hazards. Government cannot make it happen, but without government, far too many employers would lack the motivation to maintain a safe workplace.

In the long run, effective safety programs are cheaper and more efficient - more profitable! - than a workplace fraught with unnecessary and unacceptable risks. At least, that's the theory and a core belief of this blog. In practice these days, with predatory employment practices on the rise, one begins to wonder...

December 20, 2011

Raymond Letellier co-founded a steel fabrication company in New Hampshire called Steelelements. The company suffered a major fire in March of 2007. They rebuilt, although the cost of the rebuilding, managed by Letellier's partner, exceeded the budget. In October 2009 the company went out of business. Throughout the long, downward spiral, Letellier suffered from stress, hypertension and depression. Soon after the company's failure, he filed for personal and business bankruptcy. At the same time, he applied for workers comp benefits.

Letellier's claim was initially denied, then accepted for the medical costs only, and then denied again. Eventually the claim reached the New Hampshire Supreme Court, where a deeply divided court (3 to 2) ruled against Letellier. The court reasoned that the failure of the company was akin to a personnel action: workers comp does not cover such employer actions as discipline, termination and lay off. In closing the business, Letellier subjected himself - and everyone else - to a lay off. - a non-compensable personnel action.

Work-Related Stress?
Two dissenting judges pointed out that the majority focused almost exclusively on the ultimate failure of the company, the lay off itself. But the extraordinary and relentless stressors in Letellier's life began with the fire and continued throughout the struggle to keep the over-leveraged company in business. This is not the stress of a single event, but the cumulation of stress over months and years. The dissenters noted that Letellier's commute to the factory was 100 miles, so he often slept in his office, where ever-pending doom haunted his every waking moment and his troubled dreams. They opined that his multiple health issues were predominantly caused by work.

Letellier, once the proud owner of a successful business, finds himself in the same situation as laid off workers across America. He is on his own and out of luck.

We will set aside for the moment what may be Letellier's biggest mistake: instead of trying to make things that people can actually use, he should have pursued a career in finance, where he could have sold worthless mortgages, watched his company flounder, and then be rescued by tax-payer bailout, all the while preserving a superbly inflated salary. That's an All-American story of a different sort, albeit fodder for another day.

September 8, 2011

Florida doctors bought 89% of all the Oxycodone sold to practitioners nationwide last year and thousands of outside visitors flocked to the state to buy drugs at the 1,000+ pain clinics. But armed with new legislation, the state is cracking down hard by shutting down pill mills and suspending the licenses of about 80 physicians who were high-volume prescribers. And physicians are now generally barred from dispensing narcotics from their offices. In October, things will get even tougher as a new prescription drug monitoring system will be implemented.

Lizette Alvarez reports on on the Florida pill mill crackdown in The New York Times, stating that "As a result, doctors' purchases of Oxycodone, which reached 32.2 million doses in the first six months of 2010, fell by 97 percent in the same period this year." This article has some eye-opening observations about the scope of the prescription drug problem: "Last year, seven people died in Florida each day from prescription drug overdoses, a nearly 8 percent increase from 2009. This is far more than the number who died from illegal drugs, and the figure is not expected to drop much this year."

You can read more about how authorities are going after medical licenses of over-prescribers in a Miami Herald article by Audra Burch. This article discusses some egregious abuses, including a physician who dispenses from the back of a car and an office with long lines waiting outside and many cars with out-of-state license plates in the parking lot.

For more about Prescription Monitoring Programs, see:Alliance of States with Prescription Monitoring Programs - The Alliance was formed in 1990 to provide a forum for the exchange of information and ideas among state and federal agencies on prescription monitoring programs. Since then, it has grown to be a valuable resource to all those concerned with combating the increase in prescription drug abuse, misuse and diversion. Currently, 48 states and one territory either have operating Prescription Monitoring Programs, or have passed legislation to implement them.

September 6, 2011

We have been tracking the fate of the FedEx business model in state courts as it collides with increasingly stringent definitions of "employee." FedEx operates under a sophisticated and ingenious contract designed to transform their drivers into "independent contractors." It's been a tough haul. For the most part, FedEx has been losing the argument in courts, state by state, and then delaying any ultimate resolution by filing appeals. Today we examine a similar business model: cleaning operations that are classified as franchises.

Coverall North America is one of the largest franchise cleaning operations in the world, with 9,000 franchise owners, 50 support centers and 50,000 customers. Franchise owners are trained by Coverall, wear Coverall uniforms, use Coverall mandated supplies and receive payment for their work through Coverall. Coverall bills customers and then pays the franchise owners, after deducting management and royalty fees plus any other incurred expenses.

The Massachusetts Standard
Unfortunately for Coverall, they have the burden of demonstrating franchisee "independence" in Massachusetts, which has a very tough, three-pronged standard for independent contracting [Ch. 149, Sec 148B]:
1. The contractor operates free from control or direction
2. The work of the contractor is fundamentally different from the work of the general contractor/owner
3. The contractor operates an independent business and is free to offer services to anyone

Under the MA requirements, independent contractors must meet all three criteria. Coverall first encountered the problem when out-of-work franchisees filed for unemployment benefits. The MA Division of Employment & Training focused on the third prong, determining that franchisees were indeed employees of Coverall, as their work was limited to that secured through Coverall.

In a case brought in Federal Court, franchise owners sought summary judgment against Coverall for the deceptive and unfair labor practice of calling them "independent contractors." U.S. District Court Judge William Young got the case. He focused on the second prong: Coverall had to demonstrate that they were in a fundamentally different business than their franchisees.

Coverall fashioned a clever but ultimately unsuccessful defense: Coverall corporate is not in the cleaning business, but in the franchising business. Coverall corporate trains people who clean offices and Coverall manages the finances of franchisees, but no one in Coverall actually cleans. Judge Young did not buy that argument. He determined that Coverall provides the administration for the franchisees, who provide the cleaning services. One cannot exist without the other. He granted summary judgment to the plaintiffs.

Who Works for Whom?
We are by no means at the end of this seemingly endless attempt to separate independent contractors from employees. What is at stake is pretty obvious: work performed by employees is a lot more expensive than that performed by independent contractors. The lives of most people working as "independent contractors" are difficult; the hours are long, the pay is marginal, the benefits non-existent. And if injured, these folks are usually on their own.

Listen to the names of some of the plaintiffs in this particular case: Aldivar Brandao, Denisse Peneda, Jai Prem, Pius Awuah, Benecira Cavalcante, Nilton Dos Santos. Can you hear exotic music in the names of people born in other lands? And can you hear something more ominous: the dissonence and dislocation of immigration, the struggle to survive in a new land that seemed full of promise from afar, but which has proven to be harsh, stingy and relentlessly demanding?

"It is not as if this attack occurred when Hopkins inexplicably wandered into the grizzly pen while searching for the nearest White Castle. Hopkins was attacked while performing a job Kilpatrick had paid him to do - feeding grizzly bears."

In a more recent case, Judge Shea was confronted with the claim of Bruce Martin, a carpenter seeking treatment for what he insisted was a work-related back problem. While there is no reason to believe that Martin was partaking of Brock Hopkins's favorite recreational drug, he did manage to present a narrative that consistently conflicted with the perceptions of virtually everyone else involved: his employer, Jesse Chase, co-worker Barry Hollander, and claims adjuster Michele Fairclough.

Martin claimed he injured his back while stripping the plastic protective barrier off of metal siding - a relatively light-duty task. But in walking off the job that morning, he stated to his boss that his sciatica was acting up and that it was not work related. Only after going to an Urgent Care clinic did he claim that the injury happened at work. Why? We can assume that he wanted his employer to pick up the tab through workers comp.

My Aching Back
Martin's history of back problems began in the early 1990s, following a motor vehicle accident. He treated sporadically with Dr. Aumann, a chiropractor. Dr. Aumann, sympathetic to his long-term patient, thought that "on a more- probable-than-not" basis that Martin's injury was the result of the work accident he described. Unfortunately for Martin, no one else bought his story, even as the story itself changed over time.

Judge Shea wrote:

Dr. Aumann identified objective medical findings to support Martin's claim of lumbar spine problems. However, Martin has not established that this injury occurred because of a specific event on a single day or during a single shift. I did not find Martin's testimony credible. Neither Hollander, who was working alongside Martin, nor Martin's employer Chase could corroborate Martin's account of injuring his back on June 29, 2010...

It is not altogether impossible to feel a little sympathy for Martin: he has a real back problem. He is experiencing legitimate pain. He has difficulty performing physical work and is not trained to do anything else. He desperately needs income. Martin is like a lot of other American workers in these troubled times, living day-to-day on the edge of disaster. While we can understand why he would try to stretch the facts to fit the workers comp mold, we acknowledge that he was wrong to do it. As Judge Shea concluded, Martin was not injured as the result of an industrial accident. Given that definitive ruling, Martin, bad back and all, is simply on his own.

August 1, 2011

David Little worked for B & L Ford in Ashland, Pennsylvania. He suffered a shoulder injury in October 2005. He worked light duty up until January 19, 2006, when the employer received a letter from his attorney stating he was unable to perform any manual labor. The employer advised Little to secure a note from his doctor regarding his ability - or inability - to work. His doctor gave Little a letter stating he was unable to work, but before Little had the opportunity to present the letter to B & L Ford, they sent Little a letter of their own, terminating him.

Little spent a weekend brooding over the termination. He called his wife home from her job on Monday. She found Little at the kitchen table, holding the termination letter. He stood up and then collapsed from a heart attack. Emergency workers had to pry the letter from his hand. Little died later that day at a hospital.

Was this a work-related fatality? Little's widow filed two workers comp claims, one for Temporary total benefits up until the death, and one for death/survivor benefits.

Small Victory, Big Loss
A workers comp judge awarded temporary total disability benefits up to the date of Little's death; once Little became "unavailable" for work (i.e., dead), the benefits ceased. On the issue of a work-related fatality, the judge found - and the Commonwealth Court of PA upheld - that the death was not work related, as it neither occurred "in the course and scope of employment" nor did Little's activities on that fatal day "further the interests" of the employer.

There is no question that the loss of his job was a significant, perhaps predominant, factor in Little's death. However, personnel actions (discipline, demotions and terminations) are generally excluded from workers comp coverage. The sequence of events that began with his attorney's letter culminated first in the loss of the job and then in a fatal heart attack.

Given that Little had filed a workers comp claim and the employer apparently fired him because of his injury, the widow might be able to sue for wrongful termination. But the courts have made it clear that aside from a modest indemnity payment for lost time, workers comp will provide the widow no solace and no support for the work-related loss of her husband.

July 12, 2011

Dr. Jean Zannoni, 77, runs a family practice in Parma, Ohio. It would be a mistake to assume that by specializing in families, she is not interested in treating injured workers. She treats them all right - to pill after pill after pill. She was recently sentenced to two years probation and ordered to pay more than $7,500 in fines and restitution after pleading guilty to theft, attempted workers' compensation fraud and telecommunications fraud.

According to authorities, two Ohio Bureau of Workers Compensation (BWC) undercover agents were provided narcotic medications without proper medical examinations and BWC was billed improperly for the office visit.

Dr. Zannoni instructed her staff (in writing!) to bill all injured workers under the same code and charge BWC $75, regardless of the circumstances of the visit. She also manipulated "pain" ratings to ensure that patients qualified for narcotics. And she continued to prescribe narcotics to patients who were known doctor shoppers, even after receiving warnings from pharmacies, parents, spouses, social service agencies and police departments. Some family, some practice.

A Microcosm
In the scheme of things, Dr. Zannoni is a bit player. But when you try to figure out how narcotics became such a major cost driver in workers comp, you have to take into account doctors like Zannoni, who parlay a little pain into big profits.

Given the scale of her crimes - she overbilled WBC by $65,000 - the penalties in this case (small fine plus probation) seem a bit modest. On the other hand, the (Feel)Good doctor, at 77, is probably nearing the end of her practice, which may well have played into the decision to let her off relatively lightly.

This is one of the sweetest most nieve (sic) people on ths planet. I know her personally and she has no idea what goes on. All she knows is how to do is practice medicine and nothing about finances at all. God bless her and I hope everything works out for her sake.

We'll let that stand as written. And one thing is certain: those seeking pills in Parma may not be able to count on Dr. Zannoni any longer, but surely they will find other sources to make their pain go away, to get a little buzzed, and, who knows, make a little money on the side.

July 5, 2011

Work can be a killer when workers are asked to do too much: intense labor in the heat of summer, the stress of heavy repetitive lifting, moving too quickly among common workplace hazards. But can work kill us from doing too little? Can work-required inactivity lead to a compensable claim?

For twenty five years, Cathleen Renner worked as a manager for AT&T. With a heavy workload, she often brought work home and labored at her computer late into the night. In September 2007, facing a tight deadline, she appeared to pull an all-nighter; she sent an email to a colleague around midnight and was seen at her desk at 7 in the morning, at which time she complained about a pain in her leg. She labored on through the morning. Around 11 am, she had trouble breathing. By the time she reached the hospital, she was dead from a pulmonary embolism (which began with that pain in her leg).

The New Jersey workers compensation had to determined if work was the predominant cause of the death.

Risks in Doing Nothing
Back in May of 2006, we blogged the dangers of inactivity. If people sit still for a long time - for example, during air travel - they are at risk for deep vein thrombosis. It appears that Cathleen's prolonged and unrelieved sitting at her computer caused just such an incident. According to a medical expert, she experienced an "unorganized" blood clot which developed while she was sitting (as opposed to an organized clot, which takes much longer to form). Despite her other risk factors - obesity and the use of birth control pills - the court determined that her death was work related.

The defense argued that Cathleen lived a relatively sedentary life - that her sitting at the computer was no different than her sitting at other times. But her husband countered with the observation that they had school-aged children. Cathleen was always running around, taking the kids to school and appointments, cooking meals, cleaning the house and doing the myriad tasks that virtually all mothers must perform. That's a pretty compelling argument and it convinced the judges: the Superior Court determined that the prolonged sitting while performing work-related tasks caused her death.

Get Out of that Chair!
Savvy employers will note the risks of prolonged sitting and encourage - require! - employees to get up at least once an hour to move around and stretch. (Policies should cover workers in their home offices, too.) Moving around not only prevents blood clots, it also prevents injuries to the spine. Humans are not meant to sit in one place indefinitely. We are built to move and move we must.

With that being stated, I'm going to stand up and stretch a bit. Unless you are reading this on a treadmill, I recommend that you do the same.

June 20, 2011

In the world of workers comp, chronic pain is a major cost driver. When pain persists beyond expected healing times, the prognosis is grim: injured workers suffering from prolonged pain often drift into anxiety and depression and may even become addicted to powerful pain medications. In the downward spiral of relentless pain, it becomes increasingly difficult to separate physical and psychological issues. The prospect of return to work disappears, the injured worker's life disintegrates and the cost of the claim goes through the roof.

The claims adjusters who are responsible for managing chronic pain injuries usually resist any recommendations for psychological counseling; they avoid such interventions because treatment - whether individual or group therapy - cannot and should not be limited to what is "work related." Pain subsumes the worker's entire life. Yet counseling is often an essential part of what is needed: injured workers talking through their many difficulties and sharing their experience with others.

So is it possible to develop a chronic pain program that limits financial exposures, narrows the treatment options and sets reasonable time frames for completing the treatment cycle? And can pain management encompass at least some focused counseling?

Beginning with the caveat that 10 percent of all chronic pain cases will fall outside of the protocol, Hashimoto's task force tries to set parameters for all types of treatment: the number and type of diagnostic and therapeutic injections permissible; the goal-oriented use of mental health counseling, with specified durations (6 to 12 months); "very limited" use of opioid analgesics, with referral to pain specialists, if needed, and including a detailed list of specific actions designed to avoid addiction.

A Work in Progress
The DIA is soliciting comments on these guidelines. Alas, they are unlikely to hear from the relatively small portion of stakeholders who are profiting from the current chaos: the pill-happy doctors, the attorneys who discourage injured workers from returning to work, the physical therapists and chiropractors who believe that treatment, once begun, should go on forever, and the pharma sales folk who encourage use of the most powerful opiates for what is usually short-term pain.

The draft guidelines are comprehensive and reasonable. As the final guidelines will not and cannot have the force of law, they will not eliminate the abuse that currently exists. But if they help motivated treatment practitioners to offer more effective services, and if they open the door to at least some counseling for injured workers, the guidelines will surely save both lives and careers. That in itself will validate the admirable and essential work of Hashimoto's board.

June 13, 2011

DeWayne Sutton worked for Tomco Machining in Dayton, Ohio. When he hurt his back while dismantling some equipment, he followed "best practices" and reported the injury immediately to company owner Jim Tomasiak. The boss pulled a "Trump" - deviating 180 degrees from "best practices" by firing Sutton immediately. No reason was given for the termination. As you would expect, Sutton was able to collect comp benefits (termination is no bar to eligibility), but could he also sue for wrongful termination? In other words, was the termination retaliation for reporting the claim?

Under the Ohio statute, employers are prohibited from firing, demoting or taking punitive action against an employee who files a workers comp claim. The question at issue is one of timing: the claim had been reported to the employer, but not yet filed with the insurer. So did Tomasiak violate the law by firing Sutton in the interval between the injury and the report to the insurer?

Begging to Differ
In a sharply divided opinion (4-3), the Supreme Court of Ohio found in Sutton's favor, sending the case back to the lower court for reconsideration. Chief Justice Maureen O'Connor, writing for the majority, notes:

We find that the General Assembly did not intend to leave a gap in protection during which time employers are permitted to retaliate against employees who might pursue workers' compensation benefits.

The alternative interpretation - that the legislature intentionally left the gap - is at odds with the basic purpose of the anti-retaliation provision, which is "to enable employees to freely exercise their rights without fear of retribution from their employers."

The court minority noted that Sutton was able to collect comp benefits - kind of "no harm, no foul." Then, as Justice Terrence O'Donnell notes:

The majority has today expanded the public policy behind the provisions of (state law) to apply to those persons discharged before filing, instituting or pursuing a workers' compensation claim. This allowance is a legislative prerogative, and in my view, we should follow the law as written and defer to the General Assembly, instead of stretching the extent of protection to fit situations not addressed by the statute.

This is familiar territory in the world of law: liberal interpretation (the majority) versus strict construction (the minority). One vote determined the outcome.

The Biggest Loser
Business owner Tomasiak comes away with a double whammy: he is liable for the comp claim through the experience rating process; having fired Sutton, he is unable to lower the cost of the claim by bringing Sutton back to work on modified duty. Then he faces a wrongful termination lawsuit, which he is probably going to lose. The timing of his action, along with the absence of any stated rationale, reak of retaliation.

Tomasiak's impulsive response to Sutton's injury violated Rule Number One for employers: if employees are not working out, fire them before they get hurt. Once they are injured, comp laws pretty much assume that any firing would be retaliation. For Tomasiak, just trying to run his machine shop in Dayton, Ohio, this is a tough - and expensive - lesson in best practices.

June 2, 2011

Governor Rick Scott has issued Executive Order Number 11-58 compelling all state agencies under his control to implement a comprehensive drug testing program: all job applicants must undergo pre-employment testing. All current employees - regardless of what they do - must be randomly tested every quarter. Because drugs stay in the body for hours and even days after they are used, the governor is attempting to control every waking minute of the state workforce. Not even commercial drivers are subject to such stringent monitoring.

There is no question that drug testing can play an important role in a comprehensive safety program. For workers whose jobs put themselves or others at risk, random testing can be smart policy. For employers struggling with a rampant drug culture, drug testing often makes sense. [I remember discussing this issue at a workers comp seminar some years ago. The owner of a roofing company said, "I could never implement drug testing. Half my guys would fail!" (I made an immediate note to alert the underwriting team.)]

Even as we acknowledge that drug testing is appropriate under certain circumstances, we must recognize its limitations. Testing science itself, while significantly more effective than it was a decade ago, is not 100 percent reliable. The producing and subsequent custody of urine samples is at best embarrassing and at worst an invasion of privacy. Drug testing does send a message, but there are times and circumstances - such as now in Florida state government - when this message is demoralizing and counter-productive.

Within weeks of the issuance of the executive order, the ACLU sued to put a stop to the program.

Ideology and Policy
The testing of all employees, without even considering job function or safety exposure, crosses the line between best practice and rigid ideology. This policy does not stem from "business necessity" nor does it take into account individual freedom and the right to privacy. Using the governor's logic, you could argue that everyone in America should, for one reason or another, be tested for illegal drugs. This is bad policy and, to put it bluntly, unAmerican. Here's hoping the courts toss out this executive order and restore some light to the Sunshine state.

May 31, 2011

The brinksmanship continues in Illinois. A moderately effective reform bill passed the senate but has been defeated in the house by Republicans, who seek stronger ways to limit compensability. As a result, the Dems are moving forward with the Doomsday option: a bill to abolish workers comp and send each and every claim into the court system. Wow, that's one way to make everyone miserable, above all, injured workers looking for a reliable safety net.

Among other things, the defeated reform bill would have reduced the medical fee schedule by 30 percent, thereby saving (theoretically) $500m to $700m per year. The reduction sounds harsh, but in practice, fee schedules are fluid. For top specialists, the fees are almost always negotiated upward; for run-of-the-mill practitioners - or the Dr. Feelgoods with their pockets full of pills - they can take it or leave it. Lowered fee schedules provide payers with leverage to find the best available doctors - not necessarily a bad thing.

Who Blinks?
At the moment, legislators are playing a classic game of chicken: if we can't reach agreement on reforms, we'll blow the whole thing up. Given that Democrats are behind the Doomsday option, I doubt they will allow things to reach that point, as it would be a disaster for workers. But they are running out of time.

The potential good news for Illinois employers (and there isn't much when it comes to comp) is that even the modest changes in the reform bill will begin to reduce the cost of workers comp, currently the third highest in the nation. The bad news is that further reforms will be needed, most of all, perhaps, involving the de-politicizing of comp in a hyper-political state. My advice to the legislators is simple: take it incrementally. Pass the reform bill pretty much as is and revisit the issue in the next session. In this precarious situation, half a loaf is better than none.

May 19, 2011

Last year 29 coal miners died in an explosion at Massey Energy's Upper Big Branch Mine in West Virginia. Don Blankenship, Massey CEO, blamed the explosion on federal interference and a gigantic methane bubble that percolated up from below the mine shafts. The bubble has burst, but not in the way Blankenship would have you believe.

An independent team appointed by the former West Virginia governor, Joe Manchin, and led by the former federal mine safety chief Davitt McAteer, has issued its findings, which are both unambiguous and scathing. There was no methane bubble. There was, instead, a pattern of negligence by management that led directly to the deaths of the miners.

"The story of Upper Big Branch is a cautionary tale of hubris," the report concluded. "A company that was a towering presence in the Appalachian coalfields operated its mines in a profoundly reckless manner, and 29 coal miners paid with their lives for the corporate risk-taking."

The report goes on to say that a "perfect storm" was brewing inside the mine, combining poor ventilation, equipment whose safety mechanisms were not functioning and coal dust, which, contrary to industry rules, had been allowed to accumulate, "behaving like a line of gunpowder carrying the blast forward in multiple directions."

Given the uncompromising language of the report, Massey management may not enjoy the "exclusive remedy" protections of the workers comp statute. They are now vulnerable to charges of criminal negligence. I suspect that attorneys for the widows and children of the miners will look rather closely at the assets of Massey's (now former) CEO.

Farewell, My Ugly
Don Blankenship resigned from his CEO post in December of last year. Don't bother putting up a collection to buy this ethically-challenged titan of business a gold watch. In 2009 he earned $17.8 million, which does not include deferred compensation of an additional $27.2 million. There is no question that Blankenship's leadership created profits for the company. Unfortunately, these profits came at the expense of the environment and of the men who extracted the coal from the West Virginia mountains.

The anecdote that tells you a lot about Blankenship involves his personal water supply. When Massey Energy activity poisoned the water reaching his own home, Blankenship ran a private pipeline to the next town, where clean water was readily available. His neighbors, lacking Blankenship's resources, have to make do with the local, polluted water.

It will be interesting to see what happens next. In a just world, Blankenship would be held accountable for his actions as Massey's CEO. But we do not live in a world where justice prevails very often. Blankenship will likely continue to enjoy his retirement years, drinking clean mountain waters, railing about government interference, buying a few politicians and generally living the good life. We can only hope that each and every night his dreams are haunted by visions of the 29 miners and their struggling families. That would be one form of justice indeed.

May 17, 2011

Illinois is struggling mightily with its bloated workers comp system. Currently ranked 3rd highest for overall cost in the Oregon study, the governor and legislature are under intense pressure from the business community to lower the cost of comp insurance. Aiming its powerful bulldozers at the state capital, the Caterpiller Company has threatened to move their business somewhere else if reforms are not implemented immediately. In exploring all options, the legislature has gone so far as to think the unthinkable: abolishing workers comp.

In looking for ways to save money, Illinois does what all states do: first, identify the cost drivers and then try to change the statute to bring down costs. Among the hot issues on the table are the medical fee schedule (too generous), employee choice of doctor (too flexible), duration of benefits (too long), causation (too vague). Ah, behind every cost driver is a vested interest (perhaps literally vested, with many of the lobbyists wearing three piece suits). The common denominator among all states struggling with high comp costs is the omni-present stakeholder, who is deeply committed to the status quo.

Governor Quinn would like to see a number of reforms, including the capping of carpal tunnel benefits, denying claims where employee intoxication is a significant factor, attacking fraud (see our blog on Illinois's dubious arbitration services), capping wage differential benefits at age 67 or five years after an injury, and implementing utilization review for physical therapy, chiropractic and occupational therapy services.

Going Nuclear
The Illinois legislature is so frustrated with the slow progress and with stakeholder resistance to change, they are now threatening to blow up the entire system. Interesting to note, this pressure is coming from the Democrats. John Bradley (D-Marion) has filed House 1032, a bill to repeal the workers comp act and send all workplace-injury issues into the court system. Should this happen, Illinois will find itself in the world prior to 1912, when injured workers had to sue their employers and could collect benefits only if their injuries were caused by someone other than themselves. They would collect no benefits while awaiting adjudication of their claims. They would be out of work and out of luck.

In all likelihood, repeal of workers comp is not a serious option in Illinois; it's a political strategy for getting the attention of inertia-bound legislators. But the prospect of abolition does raise an interesting issue. Workers comp came to America 100 years ago. By the end of the World War II, every state had implemented the program.

What if there were no workers comp programs today? What if each state were starting from the beginning and tackling the issue of protection for injured workers? I find it hard to imagine that state legislatures would be willing to implement a program, totally funded by employers, that provides indemnity for lost wages and 100 percent medical benefits for injured workers. Why so generous? Why so inclusive? It's too expensive. It will create disincentives for working. The cost will drive employers out of business or out of state.

With today's acrimonious, ideology-driven debates, workers comp would be a hard sell. That's too bad, for despite its problems and inequities, despite the wide variations in benefits and costs from state to state, comp is a compelling example of effective social engineering. In Illinois, cooler heads will likely avoid the meltdown option. To be sure, Illinois comp is a mess, but the alternative - a workplace without workers comp - would be far worse.

May 11, 2011

New York continues to deal with the failure of the self insurance groups (SIGs) managed by CRM. As is so often the case, the question is who pays? Who assumes the debts incurred by the failed management company? When a conventional insurance company fails, the state usually covers the benefits for the injured workers and then passes some of the costs on to insurance companies and their clients, in the form of assessments. Given the large number of insurers and their clients, these assessments are relatively small for any individual company. In the CRM failure, unfortunately, the financial implications for all SIG participants are enormous.

The New York approach to SIG failures has been to expand the concept of "joint and several liability" to include not just the companies in a given (failed) SIG, but any and all companies who participate in SIGs. In other words, when NY companies join a SIG, they are responsible for their own losses, the losses of other companies in their group, and the losses of all companies involved in SIGs. Such open-ended parameters for exposure should raise red flags for any risk manager thinking about joining an Empire State SIG.

Misplaced Trust
CRM, which has filed for bankruptcy, apparently managed SIGs like a Ponzi scheme: they under-priced the insurance to attract new customers; they under-reserved claims to give the appearance of profitability; and they charged exorbitant management fees every step of the way. Like all Ponzi schemes, tt worked beautifully until it collapsed. By the time the state uncovered the problem (therein lies a tale), CRM was on the ropes. The state settled CRM's liabilities for about 10 cents on the dollar. Where does the rest of the money come from? The state is reaching into the pockets of all SIG participants, those who participated in CRM SIGs and everyone else, thus including companies that paid fair rates for insurance, focused on managing their losses and, in general, played by the rules.

Well, as they say, let no good deed go unpunished. The comp statute protects the interests of the state. The law is quite clear. Members of the solvent SIGs share the liabilities incurred by SIGs that failed to live up to their responsibilities. Is it legal? Apparently, yes. Is it fair? Well, no.

The state legislature is tinkering with the assessment plan, trying to come up with ways to ease the pain of the current assessments and insure the solvency of SIGs going forward. Don't hold your breath.

The Nature of Trust
Trust is defined as having belief or confidence in the honesty, goodness, skill or safety of a person, organization or thing. The saga of CRM has shown that trust can be misplaced, and that when it comes to participating in SIGs in NY, any and all trust is misplaced.

My advice to NY companies is simple: forget about SIGs. Find yourself a nice, guaranteed cost plan from a conventional insurance carrier, then go to sleep knowing that your premiums will reflect two things, one good, one bad: the good? The premium you pay will be based upon your own losses; you are not responsible for anyone else. The bad? You operate in a state where, despite inadequate benefits paid to injured workers, the cost of comp insurance is way too high. But that's a tale for another day.

April 27, 2011

Edwin Graning drove a van for the Capital Area Transportation System (CARTS), which serves the public in the communities surrounding Austin, Texas. He is also an ordained minister. He was sent to pick up two women and deliver them to the Planned Parenthood office in Austin. He was "concerned" that the customers were going to Planned Parenthood for an abortion, so he called his supervisor and told her that in good conscience, he could not carry out the job. He was instructed to return to the garage, where he was promptly terminated for this refusal to follow orders.

Surely, there is no basis in the law for this claim. Surely, Graning is the one who should be sued. Then again, this is the Lone Star state that some would transform into a sovereign nation.

Unsettling Settlement
Lawyers for CART advised them to settle. Blanco County Commissioner Paul Granberg said that the attorneys "advised the board that it would cost a lot more in attorney fees than it would cost to settle." So they wrote a check to Graning for $21,000. Is there any such thing as principle in law these days? Did CART's attorneys even consider doing what is right and just?

CART, which did nothing wrong, has changed its hiring procedures, to prevent a recurrence of this ludicrous situation. David Marsh, CART general manager, said officials have begun making it clear when drivers are hired "that we have a job to do and we don't decide what destinations are." Boy, that must be a revelation (no pun intended) to people applying for jobs as drivers.

Graning has been amply rewarded for his discriminatory and prejudice-laden act. He had no way of knowing why the customers were going to Planned Parenthood, which offers a wide range of health services, by no means limited to abortion. He was represented in this crackpot lawsuit by attorney Thomas Brandon, Junior, of counsel to Whitaker, Chalk, Swindle & Sawyer. Chalk it up as a Swindle, indeed.

April 13, 2011

In the ever-useful Oregon rankings, Montana has the dubious distinction of being the second most expensive state for workers compensation. Alaska, with its vast spaces and compelling views of the former Soviet Union, is number one. Gov. Brian Schweitzer recently signed HB 334, a bill designed to lower the mountainous rates. Only time will tell...

It's always interesting to see how a state legislature tackles high comp costs. In Montana, they set out to take a balanced approach, narrowing eligibility but enhancing benefits. While the legislators are patting themselves on the back for achieving their goals, unions have complained that too much of the cost reduction comes at the expense of workers. It usually does.

Here's a glimpse of the bill in action, trying to reduce employer liability for specific exposures:

(2) An injury does not arise out of and in the course of employment when the employee is:

(a) on a paid or unpaid break, is not at a worksite of the employer, and is not performing any specific tasks for the employer during the break; or

(b) engaged in a social or recreational activity, regardless of whether the employer pays for any portion of the activity. The exclusion from coverage of this subsection (2)(b) does not apply to an employee who, at the time of injury, is on paid time while participating in a social or recreational activity or whose presence at the activity is required or requested by the employer. For the purposes of this subsection (2)(b), "requested" means the employer asked the employee to assume duties for the activity so that the employee's presence is not completely voluntary and optional and the injury occurred in the performance of those duties.

At times the revised law reads like a monologue, with legislators trying to anticipate the circumstances of an injury and limiting the comp system in its ability to award benefits.

Rate Pain
The Oregon study illustrates some of the exorbitant (2008) rates paid by Montana employers. For a point of reference, we compare these rates (per $100 of payroll) to those in Massachusetts. (The MA rates are in brackets):

Massachusetts employers, in a state with six times the population of Montana, spend about $650 million for comp premiums. Montana's current tab - $400 million - is expected to drop about 25 percent as a result of the new law. Even if you reduce the above Montana rates by 25 percent, employers are still confronted with big premium bills. Mount Comp might be substantially lower than it was, but it's still a grueling climb.

April 11, 2011

We have long puzzled over a peculiar and cruel stipulation in Virginia's workers comp statute that denies coverage to workers with brain injuries, where the injury had no witnesses and the injured could not testify on their own behalf. We first encountered the issue with a trucker named Arthur Pierce, who was found unconscious beside his truck with multiple skull fractures, a sinus facture and head trauma. Had Pierce been found dead at the scene, the injury would have been compensable. But because survived the accident only to die later at a hospital, the system invoked the rule that the claimant must provide direct testimony.

In their denial of benefits, the workers comp commission wrote:

The circumstances surrounding the claimant's injury and death are tragic, and we are certainly sympathetic to the loss his family members have experienced. We are also mindful of the difficulties in obtaining and introducing sufficient evidence to support those claims...It would be purely speculative to infer that the only rationale (for the accident) was a workplace risk.

Purely speculative?. Sure, he might have been knocked off the truck by space aliens (which, to my mind, would still be compensable as he clearly was in the course and scope of employment).

Ever-So-Gradual Justice
We are pleased to report that the Virginia legislature - through a unanimous vote in both house and senate - has corrected the statute, which Governor Bob McDonnell has signed into law. Title 65 of the Code of Virginia now reads:

In any claim for compensation where the employee is physically or mentally unable to testify as confirmed by competent medical evidence and where there is unrebutted prima facie evidence that indicates the injury was work-related, it should be presumed in the absence of a preponderance of evidence to the contrary that the injury was work related.

It's too late for Claire Pierce, Arthur's widow, to benefit from a law that she diligently lobbied for. And while the Virginia legislature would never thumb its nose at the comp board, it would have been nice to call Title 65 the "Arthur Pierce Provision." This grotesque loophole has finally been closed. Unwitnessed brain injuries may now be compensable. It appears to be a no-brainer, but it took the brains of Virginia a rather long time to reach this just conclusion.

Thanks to Workcompcentral(subscription required) for the heads up on this item.

April 6, 2011

Nearly a year ago we blogged the issue of a medical fee schedule in Maine. The legislature mandated the creation of a fee schedule way back in 1991. Twenty years later, there have been a few reports, a few changes in the membership of the committee trying to establish the fee schedule and, to date, no fee schedule. We now wonder whether neighboring New Hampshire will follow Maine's example, climbing a slippery mountain trail into a deep fog.

New Hampshire, like Maine, has a two tiered system: in the first tier are managed care networks, which negotiate fees with doctors and hospitals. Everyone in the second tier - those outside the networks, the self-insured, smaller carriers, etc. - are stuck with paying the "usual and customary fees." Medical costs account for 71% of total costs - a truly staggering number when compared to the national average of 58%.

Dr. Gary Woods, an orthopedic surgeon and chair of the NH Workers Comp Advisory Council, thinks that the high percentage of medicals is the result of good medical care, combined with a strong return-to-work focus: in other words, indemnity is relatively low because workers are not out of work very long. Well, doc, show me the numbers. I expect that New Hampshire - ranked 14th highest among states for comp costs - is spending too much on indemnity and way too much on medical services. It's no bargain for anyone.

The Fix is (Not Quite)) In
The New Hampshire legislature is contemplating SB 71, which would impose a fee schedule on medical services. The bill proposes that hospitals be reimbursed at a uniform conversion rate of up to 150% of Medicare rates. While somewhat on the high side for such linked payments, it would probably bring down the overall costs of medical services in the state.

SB 71 is going nowhere, at least for the moment. The bill will remain in committee while the lawmakers appoint a study group to review the proposal and make further recommendations.

Ultimately, the details of the fee schedule will be in the hands of the comp advisory council, of which Dr. Woods is the chair. Hmm. This brings to mind the stalemate in Maine, where Dr. Paul Dionne was for a long time chair of the committee responsible for implementing the fee schedule. The group just couldn't come up with a number that would satisfy the doctors. (How would a doctor define a fair fee schedule? "Usual and customary." ) Last June, facing allegations of a conflict of interest, Dr. Dionne finally stepped aside.

Perhaps the good folks in New Hampshire could speed up the fee schedule project by asking Dr. Woods to step aside. No doctor is going to embrace a cut in reimbursement rates. Dr. Woods would have a choice: he could sit on the sidelines and watch the committee hash out the details, or, with his health and well-being in mind, he could put on his hiking boots and climb one of the Presidentials. I recommend the latter, even if the peak is momentarily obscured by the fog.

April 1, 2011

We last encountered Brock Hopkins back in June of 2010, when he had secured workers comp benefits for severe injuries incurred while feeding bears. He was a bit stoned at the time. Russell Kilpatrick, owner of Great Bear Adventures in Montana, contended that Hopkins was a volunteer. Judge Jeremiah Shea found in Hopkins's favor. Now the Supreme Court of Montana has weighed in, finding that Judge Shea got it right.

There were three major issues in determining compensability: whether Hopkins was an employee; whether he was in the course and scope of employment when attacked; and whether his marijuana use precluded payment of benefits.

Hopkins frequently worked in the park, performing minor repairs and, yes, feeding the bears.The pay was informal, but Kilpatrick would slip him some money now and then. This "exchange of money for favors" is, well, employment. Thus, Hopkins was an employee, working under the admittedly informal and ad hoc supervision of the laid-back Kilpatrick.

While it is not clear that Kilpatrick wanted the bears fed on the fateful day, he did not tell Hopkins not to feed them. And as Judge Shea deadpanned in his ruling: "...presumably, customers are unwilling to pay cash to see dead and emaciated bears." Hopkins, in other words, was working when he mixed up the feed, set down his marijuana pipe on a fence post and entered the enclosure.

Finally, the judge opined that smoking marijuana while working among bears was "ill-advised to say the least and mind-bogglingly stupid to say the most," being high was not a factor in the attack. Red, the attacking bear, was an "equal opportunity mauler" and likely would have gone after anyone, stoned or sober.

So Brock Hopkins, a loser by most accounts, wins in the courts. He collects indemnity for his (considerable) troubles and has all his extensive medical bills paid through the Montana uninsured fund. Kilpatrick's legal woes continue, as he did not carry workers comp insurance for the employees he didn't think he had. So much for clear thinking in the good mountain air of Montana.

March 21, 2011

In a move stunning for its contrariness, Vermont is moving toward a single payer health care system. In the course of the debate, the inevitable issue of whether to include workers comp has come up. At this point, a committee will make recommendations on whether to "integrate or align" workers comp with the state's radical reconfiguration of the health care system. (Further details are available at WorkCompCentral - subscription required.)

The Vermont approach would completely separate indemnity from medical benefits. Employers would continue to pay for the indemnity portion, but are unlikely to have any input into treatment plans. The Insider has pointed out - ad nauseum, some might say - that the relatively miniscule comp system is quite different from the behemoth health delivery system. In the interests of saving the Vermont committee a little time, here are a few of the conundrums confronting anyone trying to merge the two systems:

: Comp is paid solely by employers. Injured workers pay nothing (no co-pays, not deductibles, ever).
: Consumers pay quite a bit for conventional health coverage: a portion of premiums along with co-pays and deductibles for treatment and for medications
: Comp has very narrowly defined eligibility requirements, while conventional health has virtually none
: The goal of comp is to provide medical treatment for injured workers and, if possible, return them to work; if return to work is not possible, comp pays lost wage benefits and injury-related medical bills virtually forever.
: The goal of the conventional health system is to take care of people, regardless of the employment implications
: Comp provides indemnity, temporary or permanent, for those unable to work. No such wage replacements exist in the conventional health system
: Perhaps most important, medical services under comp have an occupational focus, with the explicit goal of returning people to their jobs. In the conventional health system, any occupational focus would be subordinate to the goals of the consumer.

Should Vermont achieve its ambitious goal of universal coverage, the presumption is that everyone would have a primary care physician, who would serve as gatekeeper for all medical services. (Let's set aside, for a moment, where the Green Mountain state will be able to find these primary care doctors.) In a unified system, injured workers would go to their primary care physicians for work-related injuries. These primary care docs may or may not focus on returning their patients to work. Many people hate their jobs and might welcome a few weeks or months of indemnity-supported leave. The primary care physician might be quite sympathetic to their cause.

This brings us to the great divide between conventional health care and workers comp: conventional health care may or may not embrace the need for return to work. Indeed, if the work is hazardous - as much work is - the doctor may want to discourage his patient from returning to it. The doctor's goal is to "do no harm" - so why send someone back into harm's way? If the patient suffers from lower back problems and has a job involving material handling, what is the right thing for the doctor to do?

Who Pays?
In the current system, workers comp pays doctors for eligible medical services. Whether or not they like the comp fee schedules, doctors are acutely aware that comp is paying for the services of a particular individual. Often, treatment is provided by occupational specialists, who bring a unique "return-to-work" focus to the treatment plan. These occ docs are often in communication with employers seeking to return injured workers to productive employment. The occ docs specify the restrictions so that employers can design appropriate modified duty jobs. The employers have a sense of urgency, as they are losing the productivity of the individual who is out of work - and of course, they are paying all of the costs associated with the injury.

Under the proposed Vermont system, all bills will be paid the same way. Comp disappears from the doctor's view. Employers may have little input into the choice of doctors or specific treatment plans. The role of occupational doctors is unclear, to say the least. Given that primary care physicians generally lack an occupational focus, return to work may become secondary to the comfort and personal inclinations of the patient. As a result, there is a risk of substantial increases in indemnity costs.

When contemplating change on the scale of Vermont's single payer system, it is tempting to brush aside the implications for something as small as the workers comp system. That would be a big mistake. The system might be small, but the costs to the state's employers are already substantial and have the potential for going much higher. The comp system plays an unique and long-established role in protecting both workers and employers. As they take steps to transform healthcare in Vermont, lawmakers need to remember that workers comp itself is worthy of their protection.

March 8, 2011

Later this month, we will mark the 100 year anniversary of New York's horrific Triangle Shirtwaist Fire, an event that claimed the lives of 146 garment workers - young girls and women - who had been locked in the sweatshop to prevent theft. Most died in stairwells, jumping down the single elevator shaft, or by hurtling themselves from 9th story windows in desperate attempts to escape the fire. PBS recently ran a special on this disaster. (If you missed it, you can watch online: Triangle Fire). My colleague Jon Coppelman has also written about the fire in his post The Original "No Exit".

This fire was a watershed event that galvanized the nation. It occurred in an era where there were no regulations or labor protections. Workers often worked 12 hour shifts, 7 days a week. There were no child labor laws or safety mandates. Ironically, the day before the Triangle Fire, New York courts had struck down the state's first compulsory workers compensation law as unconstitutional.

This tragedy, along with some of the horrific mine disasters that resulted in wholesale loss of life, were catalysts which led to the enactment of various worker protections - including statutory workers' compensation.

Meanwhile, today in Wisconsin ...
We think this bit of history is an important backdrop to what's going on in Wisconsin today.

Wisconsin has the distinction of being the first state in the union to have enacted a workers' compensation law that survived legal challenge in May of 1911. In fact, the state of Wisconsin has a long, storied and sometimes bloody history of being on the front lines for worker rights. Workers and labor unions were in the forefront of the fight for the 8-hour day and the 40-hour work week. In 1932, Wisconsin was the first state to enact unemployment compensation.

To any who know this history, it comes as no surprise that, once again, Wisconsin is on the front lines in the battle for labor's future.

It's the budget, stupid - or is it?
The ostensible issue, according to Governor Walker, is that the state of Wisconsin is broke and a large part of the problem lies with overly generous benefit packages of public workers - teachers, prison guards and the like - which are said to be crippling the state. He called on unions to do their part and to make a sacrifice for the greater good.

All that might be well and good. The unions have indicated their willingness to take a financial haircut. But the part of Governor Walker's Budget Repair Bill that is going over somewhat less well is a call for the elimination of collective bargaining -- and therein lies the rub.

With a Republican majority in Wisconsin's House and Senate, the bill was all but a given until the Democratic senate contingent fled the state to prevent a vote. Since that time, there have been massive protests over three weeks and the so-called Fab 14 remain holed up in un-named Illinois' hotels. And there has been no shortage of drama in this story: an embarrassing and revelatory 20-minute prank call to Governor Walker from an impersonator of corporate financier David Koch; and a sheriff's refusal to play the role of "palace guard", among other things.

Other states have also embarked on this path: Ohio may be making more headway in curtailing unions. In Indiana, Democratic legislators have followed Wisconsin's lead and left the state to postpone a vote. In Rhode Island, nearly 2000 teachers have been dismissed. Other states may be contemplating similar measures, although some may be a bit shy of action given the shifting public sentiment, which favors retention of collective bargaining and has given Walker a black eye - to a point where voters say they would not elect him again if they had a do-over. (see Wisconsin Public Research, Rasmussen, USA Today/Gallup, Public Policy Polling and various other polls. )

It's uncertain what will happen in the next chapters, but we will be watching. It is clear this is another watershed point in labor history, a public policy fork in the road, perhaps the beginning of the end of the movement that was propelled into mainstream America by that terrible fire 100 years ago. While polling indicates that sentiment is currently on the side of the teachers in this dispute, the future of public unions is under serious threat. Is the role of unions obsolete? Has the public dialogue achieved an equilibrium between the rights of workers and those of management?

At Lynch Ryan, we have great respect for unions, which have historically played a critical check-and-balance role in labor-management power dynamics. They have also been in the forefront of the fight for worker safety and other worker protections. We also admire and respect many employers we have been privileged to work for who are perceptive and wise enough to manage their companies so well that unions are not needed. We'd like to say that all employers are this enlightened and do not need union checks and balances to do the right thing, but unfortunately our experience tells us that this is not always the case.

February 24, 2011

Amid much controversy, the Texas Legislature is considering SB354, a bill that would allow licensed students and professors to carry concealed handguns on college campuses. The bill has passed a Senate committee and has been referred to the Committee of Criminal Justice, where it will be up for a hearing. (Follow SB354). With support from Governor Rick Perry and more than half the members of the House signing on as co-authors, most observers think that the bill will be passed. But according to an article by Patrick Williams in the Dallas Observer, concealed guns on campus is not necessarily a fait accompli: "[Similar] legislation has failed 43 times in 23 states since Virginia Tech," Malte says, referring to the 2007 campus mass murder that claimed 32 lives. "Every time somebody said this is a done deal over the last three years, it was defeated."

With sympathetic Republicans at or approaching supermajority status in a few of these states, the political stars are in alignment for success. Ultimately, the deciding factor may come down to the strength of student and parental support or opposition. Keep Guns Off Campus says that the American Association of State Colleges and Universities (AASCU) and 271 colleges and universities in 36 states - 189 four-year colleges and universities and 82 community colleges and technical schools - have joined the Campaign to Keep Guns Off Campus. (See Listing). On the other hand, Students for Concealed Carry on Campus point to widespread support - not the least of which is the mighty power and deep pockets of the NRA.
Follow-on to "Guns at Work"
The spate of campus carry legislation is a natural adjunct to the NRA's major "guns at work" legislative initiative, which has been sweeping the country in recent years to considerable success. According to the NRA, there are now 13 states that have laws permitting employees to have guns at work: Alaska, Arizona, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Minnesota, Mississippi, Oklahoma, and Utah. While the particulars of these laws vary, such laws generally allow licensed gun owners to keep guns locked in their cars at work, including on employer-owned parking lots. In some states, certain business such as hospitals, schools and prisons are exempt. This is an issue that has pitted the rights of an employer to establish policy for their private property (employer-owned parking lots) against second amendment rights. It's an issue that has been opposed by employer groups and associations.

February 14, 2011

If Missouri is the "Show me" state, Pennsylvania is in the running for the "show me the documents" state. They have a way of over-engineering solutions to what may or may not be problems. (See our prior post ["Blood on the Forms"] on requiring injured workers to sign 2 forms at the time of injury.) Now the Keystone state weighs in on the independent contractor conundrum through the recently implemented Construction Workplace Misclassification Act, also known as Act 72.

In tackling the problem of misclassification, Pennsylvania has done something smart: they have limited the scope of the law to the construction industry, where the worst abuses abide. (Massachusetts kicked a hornets nest with an expansive definition of independent contractor that extends well beyond construction.) The statute contains the usual and customary language requiring independent contractors to control the work, work for others and provide their own tools. But in its relentless need for documentation, Pennsylvania requires general contractors and subs to get out the pens and archive some paper. Independent contractors must:
- Have a written contract for every job
- Carry at least $50,000 in general liability coverage for the duration of the job (this requires a certificate of insurance from the agent)
- Document a proprietary interest in their business (how would a sole proprietor do this - tax forms?)
- Realize a profit or suffer a loss for the project (an interesting and potentially problemmatic issue for craftsmen whose spouses are not accountants)

Act 72 prohibits general contractors from forcing subs to sign any contract that results in misclassification. It also forbids retaliation against any person who files a complaint under the law.

The Amish Exception
As we pointed out in a previous blog, Pennsylvania's Amish population (roughly 51,000 total) is generally exempt from insurance requirements. Amish employers are not required to provide social security or workers compensation coverage, and it appears likely that the Amish will be exempt from the new health insurance standards. When a need arises, they pass the (rather old fashioned) hat throughout their community.

So what happens when an Amish (or non-Amish) general contractor hires an Amish sub? Which of Act 72's requirements apply to the Amish? Certainly not the general liability insurance. Perhaps not the "profit and loss" and "proprietary interest" documentation. While we are not suggesting that employers seek out Amish subs to avoid Act 72, it might simplify matters. For everyone else in PA, it's time to focus on the paperwork.

We read in WorkCompCentral (subscription required) that a state senator named Mark Leno (any relation to Jay?) has introduced a bill to clarify the rights of medical marijuana users in the workplace. Senate Bill 129 gives workers a right to "damages, injunctive relief, reasonable attorney's fees and costs..." if employment decisions are based upon their medical use of marijuana. Then Governor Schwarzenegger vetoed the bill in 2008. Senator Leno is guessing he might have better luck with Governor Brown (AKA Governor Moonbeam).

Joe Elford, chief counsel for Americans for Safe Access, believes that legislation in necessary in order to assure equal rights for medical marijuana users who are not technically disabled: employers have an obligation to accommodate the disabled, but they may not view others the same way. "Under SB 129 you don't have to be disabled, you simply have to be a medical marijuana patient."

He goes on to say that Proposition 215 was not intended just for the unemployed: its protections must include workers in the workplace.

Ah, there's the rub. How do you draw the line between drug free workplaces and medically approved use of marijuana (and, for that matter, opiates and other pain killers)?

Locked Out, Tagged Out, Zoned Out
SB 129 tries to have it both ways. On the one hand, it states: "Nothing in this article shall require any accommodation of any medical use of marijuana on the property or premises of any place of employment or during the hours of employment." Any employee who is under the influence of marijuana at work can be terminated.

On the other hand, the bill tries to protect the rights of at least some employees at work who might in fact be somewhat impaired by their use of pot. While the bill does not provide protection for workers in "safety sensitive" positions, it does protect everyone else. It defines "safety sensitive" as "a job that has greater than normal level of trust, responsibility for or impact on the health and safety of others or where errors in judgment, inattentiveness or diminished coordination could put others in danger."

Hmm, what have these guys been smoking? How many jobs can you think of where "errors in judgment, inattentiveness or diminished coordination" would not be a serious if not immediate problem? Would this legislation actually protect employers from "negligent retention" claims where their (somewhat) stoned workers make marijuana-induced mistakes? "Sure, he messed up the calculation of your benefits. But you'll have to cut him some slack. He was on (medically approved) medication."

I have the greatest sympathy for legislators struggling to balance the rights of workers in need of specific medications with the rights of everyone else. But in this case, they appear to be straddling the Grand Canyon. Is there any job where inattentiveness and diminished coordination would be acceptable? Consulting? Actuaries? (just kidding). I would suggest that the legislators create a specific list of any such jobs. That would make for interesting hearings, at the very least, and the applications for these positions would increase exponentially.

You have a problem with how I'm doing my job? Dude, I'm locked out. Try me a little later.

January 31, 2011

John T. Dibble is an arbitrator in Illinois. He was very active in the cases for carpal tunnel syndrome filed by 230 guards at the Menard Correctional Center. The guards alleged that their injuries were due primarily to the constant turning of keys in antiquated and rather sticky locks. No diddler, Mr. Dibble approved over half of the repetitive trauma cases filed by the guards, who collected nearly $10 million in a three year period. The repetitive filings for repetitive motion have caught the eye of Illinois Governor Pat Quinn, who has appointed a lawyer to investigate. NOTE to lawyer: WD 40 can do wonders for sticky locks.

It turns out that Mr. Dibble's sympathies run deep. In fact, he has some shared experience with the prison guards who come before him. On November 12, 2009, Mr. Dibble fell on the steps at a hearing office in Herrin. He filed a claim for "post-traumatic carpal tunnel" [whatever that may be], claiming injuries to "both knees, both hands, both elbows and (his) left little finger." That would be the finger he holds up in the air when partaking of his post-hearing tea, I suppose.

Mr. Dibble settled his case for $48,790. The payment included a 17.5% loss of function for each hand and a 7.5% loss of function in his little finger. The check was cut based upon a form signed by three parties: the office of the attorney general, a Central Management Services official and Dibble himself. Mysteriously, the award was not listed in the comp commisioner's online data base. The actual case file has disappeared - and I'm guessing that the medical records have disappeared as well. It would be fascinating to read the doctor's report that resulted in Mr. Dibble's rather generous loss of function awards.

The job of arbitrator in Illinois is hazardous, indeed. Seven of the state's 32 arbitrators either filed for or received a workers comp payment, including three for repetitive trauma. You know what happens: you listen, day in and day out, to the prison guards's tales of woe, and eventually your fingers start to tingle and your wrist aches a bit. It's the price you pay - and perhaps the reward you reap - for lending a sympathetic ear.

Kudos to reporters George Pawlaczyk and Beth Hundsdorfer of the Belleview News Democrat for their coverage of this story.

January 25, 2011

Two years ago we blogged the sad story of Arthur Pierce, a commercial driver in Virginia who suffered a traumatic brain injury and eventually died from a fall on the job. Pierce's death was deemed non-compensable due to a cruel and rather peculiar glitch in the Virginia comp statute. Under the law, if a worker suffers a brain injury that is not witnessed by others, and the worker is unable to provide details on the injury (Pierce was found in a coma from which he never emerged), the incident is not compensable. There is no room for judicial discretion: no testimony, no benefits.

We also blogged a more recent incident, where Dan Casey, a cable installer, fell off a roof. Again, there were no witnesses and again, in the days and weeks following the incident, Casey had no memory of what happened. Fortunately for him and his family, he eventually was able to remember some of the details. With some reluctance, the insurer settled the case.

The problem, obviously, lies in the Virginia comp statute. Rather than allow the comp system the normal latitude in determining compensability, the law rigidly lays out a harsh standard: if there are no witnesses, the employee must provide the narrative. In the absence of a narrative, there can be no compensability. In the above rare but compelling circumstances, seriously injured workers were unable to provide details on exactly what happened.

The Fix is In?
There is finally some movement toward amending the faulty statute. Here is the language of a bill which recently made its way out of committee, onto the floor of the Virginia House:

Workers' compensation; presumption that injury arises out of employment. Creates a presumption that a workplace injury results from an accident arising out of employment for purposes of the Workers' Compensation Act if the employee is found dead or to have incurred a brain injury resulting from external mechanical force that impairs the employee's brain function to such an extent that the employee is incapable of recalling the relevant circumstances of the accident. A judicially created presumption currently exists when an employee is found dead as the result of an accident at his place of work and there is no evidence offered to show what caused the death or to show that he was not engaged in his employer's business at the time.

Note that the brain injury must be the result of "external mechanical force" - no aneuryisms need apply. This revision would crack open the door to compensability just enough for a grievously injured Arthur Pierce or Dan Casey to slip through.

Pierce's widow has been lobbying the legislature to address this gaping hole in coverage for Virginia workers. She has nothing to gain, as the changes will not be retroactive. But it would be comforting to think that workers who suffer severe brain injuries on the job in the Old Dominion State will have recourse to the protections that are virtually universal for all workers. That would be a sanity clause, indeed.

January 11, 2011

A deranged man with a high-powered handgun in Tucson, Arizona, has killed six people and wounded many others. We will never really understand what drives an individual to plan and execute this kind of action, just as we cannot fathom why a man (or woman) would in the name of religion strap explosives to their bodies and kill themselves and as many innocent victims as possible. Belief systems are powerful motivators; demented beliefs can bring about appalling results. In these trying times, as the poet Yeats put it, "everywhere the ceremony of innocence is drowned."

Today we limit our meditation to the role of workers compensation in this incidence of mayhem. Congresswoman Gabrielle Giffords (D-AZ) was holding an informal "Congress on the Corner" gathering outside an ironically named Safeway Supermarket, when Jared Loughner walked up behind her and shot her in the head at point blank range. Somehow, she has survived to this point. One of her aides, Gabe Zimmerman, was killed. For what it's worth, both are covered by workers comp, as they were "in the course and scope of employment." A number of Giffords's volunteers were also injured: their medical bills will likely be covered by comp, but they probably will not receive any indemnity benefits. Innocent bystanders are on their own: whether employed or not, their jobs did not bring them to that fateful location.

Federal Judge John Roll, who was killed, is a special case. The justice department will try to prove that his attendance at the event was an official act: that rather than just casually dropping by to see his friend, Rep. Giffords, he was "in the course and scope of employment" when he left his nearby office to attend the meeting. Why? It is surely not workers comp that concerns the feds; they want to include the murder of Judge Roll in the federal charges against Loughner and can only do so if the judge was technically on the job at the time he was assassinated. (Ironically, the judge had received death threats due to recent rulings.)

The Politics of Mayhem
Some have drawn a direct link between Loughner's actions and the inflammatory rhetoric of recent political campaigns. When politicians talk of "second amendment solutions" to ideological differences, they are referencing guns. By placing a cross-hair image over an opponent's photo, they raise the specter of assassination. Based upon the limited evidence of Loughner's web postings, his actions are likely the result of internal demons. His links to the real world were tenuous at best. He may have thought his actions were political, but like his brethren the suicide bombers, any intended political message is subsumed and ultimately obliterated by sheer madness.

This is by no means the first time that humanity has been confronted with such images of meaningless depravity. Yeats published "The Second Coming" in 1920, just a couple of years after the end of the first world war - the "war to end all wars."

Things fall apart; the center cannot hold;

Mere anarchy is loosed upon the world.

There was much anarchy then, much anarchy to follow in the dark days of the second world war and, alas, much anarchy in our time.

December 6, 2010

You may recall the New York saga of Compensation Risk Managers (CRM), who single-handedly brought down the entire workers comp self-insurance group (SIG) industry in the empire state. Well, CRM is back in the news, this time in California, where their dubious business practices have collapsed a self-insurance group for the construction industry. The name of the failed SIG is "Contractors Access Program - get it? "CAP." As in, "your exposure is capped; you have nothing to worry about." To paraphrase a legendary President, "we have nothing to fear except fear itself" - to which we must add, unfortunately, the legitimate fear of predatory insurance administrators.

New York regulators took a very hard line in their response to the insolvency of a dozen SIGs operated by CRM. Someone had to make up the deficit created by CRM's mismanagement, so they decided to penalize all the SIGs operating by the rules. This harsh and rather expansive definition of "joint and several liability" led the well-managed SIGs to abandon the state.

At this point, it's not clear how California is going to pursue the $38 million shortfall. They will probably go after the actual participants in CAP, but it's highly unlikely they will find anywhere near the cash to cover the insurance deficit. Meanwhile, eleven of the SIG members are suing CRM, the agent who sold the product and the SIG's board of directors (some of whom are SIG members). If you total up the premiums paid by those filing the lawsuit, you only come up with $5.2 million. So the scale of the losses - $38 million - appears large enough to put every one of the SIG members out of business.

Promises, Promises
One of the interesting aspects of the lawsuit is the way the plaintiffs have quoted the marketing spiel right back at the defendents. They were promised "superior underwriting, claims oversight, loss control and administration." The "rigorous underwriting" would provide savings "while preserving the integrity of the program." Potential clients were assured that their exposure was limited to the premiums paid (a complete misrepresentation of the nature of SIGs) and that reinsurance kicked in on any claim above $500,000. (In reality, there was no reinsurance.) The agent who sold this dubious product promised to function as "much more than a broker." They brought "particular expertise" to the program and would serve as the clients's "partners in risk management functions." Some partner!

What apparently was not disclosed to members and prospects was the fact that the SIG was losing money almost from the very beginning. CRM had a fall out with the original broker, which resulted in $6 million of SIG funds being used to pay him off.

The CRM website is still up, where you can read about "the CRM advantage." They have an advantage, all right: they take advantage of naive and trusting companies seeking a little edge in the competitive comp market. It's a killer edge, to be sure.

November 30, 2010

On a recent drive through rural Ohio, I was startled by an unusual image: a horse and buggy crossing over the interstate on a bridge. Later, at a rest stop, a long line of Amish folks, dressed as if from central casting, stood patiently in line at the Burger King. When they departed, I went up to the counter and asked what they had ordered. "Burgers and biscuits, mostly." The Amish get biscuits from Burger King?

This memory came to mind when reading at Philly.com of a clash involving roofers in the western suburbs of Philadelphia. It seems that the Amish have an unfair advantage when bidding for roofing jobs against non-Amish contractors. The latter must factor in the costs of social security and workers compensation when bidding for work - and as comp practitioners know, the cost of comp for roofers is, well, through the roof. Under federal law, the Amish are exempt from social security; their religion rejects any form of insurance other than Divine. Under Pennsylvania law, they may opt out of workers compensation as well (though some Amish contractors do not). When you factor the costs of these coverages into the work, it's no surprise that Amish bids are routinely 30% or more lower than non-exempt contractors.

In the good times (remember those?), these differences did not matter much, as there was plenty of work for everyone. Today, however, there is a hard-scrabble search for work. Non-Amish contractors complain that the Amish have an unfair competitive advantage.

Lifestyles of the Not-So-Rich and Famous
The Amish also have a lifestyle advantage. They reject many aspects of modern culture. Many, though not all, refuse to operate machinery. Most do not use electricity. They do not have to worry about flat screened TVs, cable, iPods, iPads, cell phones, etc. They cling to a simple lifestyle that explicitly turns its back on what most people think is essential and necessary.

This brings to mind one more image during my brief encounter with the Amish in Ohio. As I was entering the rest stop, an Amish family was exiting. The father, with his wife a few steps behind, led his six children (their families tend to be large). One of the daughters held the hand of the youngest, a sweet blond 4 year old, who was blind. Bringing up the rear came another daughter, about 16, in a long, plain cotton dress that covered her from neck to ankles, over which she wore big, clunky work boots, laced half way up. Her gaze was indefinite, as if she were oblivious to the prosaic surroundings. She was strikingly beautiful.

I could not help but wonder whether she would remain with the culture that nurtured her, or whether she would yield as most of us do to the temptations of the beckoning world, a world full of greed and gadgets, where insurance is an absolutely necessity ...and by no means divine.

October 25, 2010

Tasha Dakota Burns lived with Tony Anguiano for four years. After his divorce from his first wife became final, Tony - on several occasions - asked Tasha to marry him. Tasha did not take him seriously, because his proposals only came when he had had a bit too much to drink.Tony gave Tasha an engagement ring for Christmas in 2005. Tasha acknowledged that neither she nor Tony referred to the rings as wedding rings, but it was her intention to marry Tony.

Tasha had one child by Tony, with a second on the way. Then on August 22, 2007, Tony was killed in a work-related accident, thrown from a scaffolding 40 feet in the air. The status of Tasha's relationship to Tony suddenly became paramount. She filed for death benefits under the Kansas comp statute.

At her initial hearing for benefits, Tasha testified that she believed she and Tony were married sometime in 2005 because "he gave me a ring and I gave him a ring and he wasn't going nowhere and I wasn't going to go nowhere." After the two exchanged rings, she said that Tony repeatedly stated, "I'm going to marry this girl or this is my baby and I'm going to marry her." However, Tasha admitted that Tony never stated that the two were actually married.

It is painful and perhaps futile to parse the language of a couple that "ain't going nowhere", but parsing is what the judges in these cases must do. Under Kansas law, to establish a common-law marriage, a plaintiff must prove (1) capacity of the parties to marry; (2) a present marriage agreement between the parties; and (3) a holding out to the public as husband and wife.

"Although the marriage agreement need not be in any particular form, it is essential there be a present mutual consent to the marriage between the parties" [emphasis added].

Ah, there's the rub: a "present mutual consent." We can probably assume that, had Tony been around to answer the question, he would have affirmed his marriage to Tasha. But Tony, alas, is gone and Tasha is left holding the proverbial (empty) bag. The Court of Appeals upheld the workers comp court in its ruling that there was no proof of marriage.

What's in a Name?
In building a case to reject Tasha's claim, the Court pointed to the fact that she continued to use her maiden name. While she claimed that it is uncontroverted that she "holds out to the public her married name, present intent to be married...and a wedding ring on her finger," Tasha testified that she introduces herself to others as "Tasha Burns," her driver's license lists her as "Tasha Burns," she signed her 2005, 2006, and 2007 tax returns as "Tasha Burns," and she never used the name "Tasha Anguiano" in any official capacity.

To which I say to the court, so what? Lot's of women keep their original names after marriage, so a similar standard should be applied to common law marriages.

Tasha took the risk of living with Tony and having his kids, without the protection of formalizing their relationship. Surely, it seemed unimportant at the time, especially as the marriage proposals came only when Tony was a bit looped. But as this tale illustrates, we never know how much time is given to us. The fates can be cruel; the days that seem to stretch far into the future can end abruptly. And the consequences of not explicitly establishing the exact nature of a relationship may haunt us for the rest of our lives.

October 21, 2010

We have just one item to share today - an important and useful tool from the folks at Oregon's Department of Consumer & Business Services: 2010 Oregon Workers' Compensation Premium Rate Ranking, which ranks all 50 states plus the District of Columbia for rates that were in effect in January 2010.

We've taken the liberty of excepting a graphic to give you a sampling of the information, but you really want to save a copy of the report for future reference - the data is updated every two years. The chart offers a bird's eye comparative view of state rankings; and accompanying chart breaks data down by state. As might be expected, there is more detail for Oregon.

Montana and Alaska continue to be among the two most costly states but shifted order since 2008. In 2008, Ohio ranked third highest costs, but has dropped to #17, while Illinois moves up to the #3 spot, a dubious distinction. North Dakota, Indiana, And Arkansas are the three least costly states in 2010. Massachusetts had previously been #49, rising in the ranks to #44 in a list where higher means less costly. For comparison, see the 2008 report.

For commentary on this report and other related matters, see our past posts:

September 29, 2010

In November the voters in the Evergreen state have the opportunity to end one of the few remaining monopolistic systems for workers compensation (the three others are North Dakota, Ohio and Wyoming). As you might expect, there is much fulminating and little rational discourse evident in the pre-election build up on Initiative 1082.

Opponents of privitization project visions of greedy insurers denying claims (Hank Greenberg with an ax?), while proponents lampoon the arrogance and incompetence of a bloated state bureaucracy. (If you want to see what passes for humor in the great northwest, check out this rather lame rap video in support of the initiative.)

It's hardly surprising that opponents of the measure view insurers as a greedy, heartless enemy. On the other hand, it's pretty clear that most monopolies tend to evolve (or is it devolve?) into behemoths slow to respond and slow to innovate. Both visions suffer from inaccuracy and distortion.

Who Pays?
In most states, employers bear the full cost of workers comp: employees pay nothing for the premiums and nothing for the treatments. In Washington, there are three funds supported by comp premiums: an indemnity fund; a medical fund; and a supplemental pension fund. Employees contribute through payroll deduction to the latter two funds. The current deduction is 0.1543 percent of earnings, with no caps. If I've done the math right - a big if, unfortunately! - that's about $76 per year for the average worker. Not a lot of money, but the principle is interesting - employees have a little "skin" in the game. Total employee contribution of premiums does reach the substantial level of about 22 percent.

While you would expect small businesses to embrace competition, some oppose 1082 for the simple fact that it will eliminate the employee contribution to premiums and shift the entire burden onto employers. Costs might go up. On the other hand, competition might bring costs down.

Decision Makers
Currently, costs for workers comp in Washington are modest: they rank 38th for cost in the 2008 Oregon survey, with an average rate of $1.98 per $100 of payroll. If the costs were higher, the pressure for change would probably be much more intense. As it is, voters will go the polls as they often do, with a lot of inflammatory rhetoric (and perhaps an annoying rap song) ringing in their ears. Then they will fill out their ballots. The fate of Washington's comp system is in their hands.

September 27, 2010

Most of us associate a determination of disability with the inability to perform some or all aspects of a job. But most us do not work in Bell, California.

When former Bell police chief Randy Adams agreed to leave his job as chief in Glendale and run the department in Bell, he entered into an unusual agreement with city administrator Robert Rizzo. The agreement stipulated that Adams was disabled, suffering from the lingering effects of back, knee and neck injuries sustained in his prior public safety jobs. His attorney, Mark Pachowicz, said the agreement was designed to ensure that his client would not have to fight Bell for a medical pension.

Lest you think that Bell simply had an aggressive "hire the handicapped" program, it appears that Adams was able to perform all the duties of his job, with no accommodation required. In other words, this "disabled" hire was indistinguishable from able-bodied applicants for the job. There was a single stipulation of "no heavy lifting" - for a job which required no heavy lifting.

An Offer He Could Not Refuse
Rizzo considered Adams so capable, he hired him into two positions: police chief and special police counsel. Bell was so anxious to secure Adams's services, they offered him $457,000 a year, double his prior salary. The hiring agreement qualified Adams for a tax-free disability benefit of $205,000 per year. Oh, did I mention that the hiring agreement also provided lifetime health insurance for Adams and his dependents, with no vesting period? Sure, that sounds like a pretty generous package, but Rizzo himself was pulling down $787,000 for taking on the burdens of managing the relatively small (pop. 40,000) working class town.

During his prior employment, Adams settled a workers comp claim for $45,000, following back surgery. He returned to work after a two week absence - which makes the amount of settlement appear rather generous. The comp settlement, however, is chump change compared to the irrestible benefits of working for Bell.

Fortunately for the beleagured Bell (and California) tax payers, this entire corrupt edifice came crashing down with the arrest of Rizzo and his numerous co-conspirators. (Adams has not been charged.) The status of Adams's questionable hiring agreement with the city remains unresolved. As spokesperson for the California Public Employee's Retirement System Ed Fong put it: "You're only supposed to receive a disability retirement if you are disabled and unable to perform the normal duties of your job. If that is not the case, it would be fraud."

In Bell they called it "standard operating procedure." It was lucrative while it lasted. But the bell has tolled, bringing to an abrupt end a corruption scheme of All-American proportions.

September 21, 2010

Matt Mitchell was an Illinois state trooper. On November 23, 2007, he was bombing along Interstate 64 at 126 miles per hour, on his way to an accident scene. He was chatting with his girlfriend and sending text messages. The road was somewhat clogged with holiday travelers. His speeding was not necessary, as help had already arrived at the accident scene. The distracted trooper crossed over the median and hit a car head on. Two sisters, Kelli and Jessica Uhl, were killed instantly. Two other occupants of the car were injured. Trooper Mitchell suffered severe leg injuries.

Speeding for no reason. Texting and talking unrelated to his job. Reckless. Negligent. And, it appears, compensable.

Mitchell pleaded guilty to reckless homicide and reckless driving and was sentenced to 30 months probation. He resigned his position with the state police. He has filed a claim for workers comp benefits, which is likely to be awarded because Mitchell was in the course and scope of employment. In the stipulation during a civil suit filed by the parents of the Uhl sisters, the Illinois attorney general agreed that, despite the criminal negligence, Mitchell was acting in his capacity as a state trooper when the accident occurred. Yes, the speeding was gratuitous, the texting irresponsible, the girl friend chats unrelated to work. But Mitchell was heading to the scene of an accident. He was a jerk and a menace, but he was working.

On the Hook
Illinois taxpayers face an interesting double jeopardy. They are on the hook for the deaths of the Uhl sisters. And they will soon be on the hook for Mitchell's loss of function payments and possibly for permanent total benefits.

It's worth noting that just three days after pleading guilty to the criminal charges, Mitchell testified in a claims hearing that he was not responsible for the crash.

If Mitchell had not been heading for an accident scene, if he was speeding simply because he wore a uniform that allowed him to get away with it, perhaps his claim would be denied under the concept of "wilful intent." We are reminded once again of comp's cornerstone principle of "no fault." There's plenty of fault in this sorry saga, but it does not - alas, it cannot - matter one bit.

September 20, 2010

Last year the Insider blogged the unfortunate fate of Arthur Pierce, who died in a work-related accident, but whose claim was denied due to a glitch in the Virginia comp statute. Fearing a rash of bogus claims by workers faking severe brain injuries, the lawmakers allow insurers to deny any unwitnessed incident where the injured worker cannot testify to what happened. If Pierce had died instantly, his claim would have been accepted. By surviving for months without being able to talk, he never collected a dime.

Dan Casey, a columnist for the Roanoke Times, brings us the saga of Mike Gentry, who fell off a roof while installing a satellite dish. He survived, but suffered brain damage and severe physical trauma. While paying the claim at first (Gentry was in a coma and rehab for weeks), the insurer finally got to talk to him. Here is Mike and his wife Andrea's summary of the exchange with the claims adjuster:

"And he said no," Andrea interjected. "Because he didn't. And she said, 'OK, that's all I need.'"

Thus, in accordance with the peculiar and patently unfair Virginia law, the claim was denied. Ironically, just 12 days before Gentry fell off the roof, an attempt to change the Virginia statute, instigated by Arthur Pierce's widow, was defeated in committee. The revision would have allowed brain injured workers the same presumption of compensability as workers killed on the job. In the words of insurance lobbyist and attorney Charles Midkiff, any changes in the current law would be "an invitation to fraud."

It was only through the kindness of strangers that Gentry and his family were able to survive the months without any insurance benefits. Then a minor miracle occurred: Gentry's memory of the incident came back. Not all at once, but gradually. First, he remembered that the battery on his power drill died. A few more memories filtered in. Finally, about a month after the initial recall, he remembered everything. He was climbing down to get a replacement battery from his truck, when the ladder slid and he fell.

(Over)Due Process
Armed with this new information, Gentry filed for benefits. The carrier, defended by - who woulda guessed? - attorney Midkiff, managed to delay the hearing for months (from December 2009 until April 2010). Finally, three hours before the rescheduled hearing, the carrier caved and accepted the claim.

Mike Gentry will never work again. He has double vision, his speech is slurred and he is frequently exhausted. He has severe seizures and difficulty thinking. He takes 10 medications daily. But he and his family are finally protected by the workers comp safety net - no thanks to a carrier following the letter of the law, and no thanks to the legislators who think workers are going to fake brain injuries in order to qualify for benefits.

In the words of the immortal Frank Zappa: "The United States is a nation of laws: badly written and randomly enforced." Not true of most laws, but certainly applicable to this bizarre and completely unnecessary provision of Virginia's comp statute.

September 13, 2010

Five years ago we blogged the problem FedEx would inevitably run into in Massachusetts, where the definition of "employee" is so inclusive, it's almost impossible to find a truly "independent contractor." Well, the proverbial chickens have come home to roost.

Attorney General Martha Coakley has announced a settlement with FedEx, wherein the delivery giant has agreed to pay a little more than $3 million relating to the status of 13 "misclassified" delivery drivers. Without admitting liability or wrongdoing, FedEx has agreed to refrain from using the "independent contractor" strategy in response to claims for benefit coverage, including payroll taxes, unemployment insurance, and workers comp. In exchange, Massachusetts will refrain from any further legal action for one year. In other words, for the modest sum of $3 million, FedEx has bought itself a year to clarify its business strategy. Therein lies a tale of attorneys, well worth the telling.

FedEx maintains a steadfast commitment to a business model for its ground delivery system where the work is performed by independent contractors. With a healthy scepticism in our hearts, we have frequently blogged the barriers to independence: the drivers wear FedEx uniforms, drive FedEx trucks, adhere to FedEx dress codes and schedules, etc. FedEx ground does not exist without these drivers and that makes them, in effect, employees. The response to the fundamental query "who controls the work?" has been unambiguously, FedEx.

ISP to the Rescue?
As part of its agreement with the Commonwealth, FedEx has outlined its rationale for the independent contractor model. They propose entering into an Independent Service Agreement (ISP) with driver/managers in each service area. Appended to the MA settlement in draft form, the ISP agreement tries diligently to carve out a middle ground where the work is performed independently, but to FedEx standards.

Here are a few of the details:

The local driver/manager must operate under a corporate entity recognized by the state(s) in which he or she operates.

The driver/manager can hire and fire employees and must provide all mandated benefits to employees, including workers comp

Theoretically at least, the driver/manager can be a sole proprietor without employees; in this case, the issue of workers comp coverage is governed by the state statute on sole proprietors (who usually can opt out)

The agreement states that FedEx Ground has no authority to "direct as to methods, manner or means" the provision of services.

The ISP manager has "exclusive rights" in a specific geographic area

While the ISP has the right to decline service, in such cases this triggers the right of FedEx to ensure services

Drivers are not compelled to wear FedEx uniforms or drive FedEx vehicles, but they are paid a weekly incentive to do so.

As you can see, FedEx is trying to establish independence while still maintaining its identity and its standards. The Attorney General has not made any judgment about the validity of this strategy; she has simply cashed a nice check, in exchange for which she has given FedEx a year to work out the kinks. After the year is up, the FedEx model will likely be challenged once again.

Not Quite Independent?
You have to credit the presumably well-paid FedEx team: they have tackled head on the thorny issue of "free from control and direction." On the surface at least, the ISP approach offers a credible if not totally convincing appearance of independence.

Unfortunately for FedEx, the MA standards have two additional components, neither of which appear to be addressed in the draft ISP agreement: independent contractors must provide a service outside of the general contractor's usual course of business (no way FedEx can do this) and their independence is reflected in their marketing of services beyond a single customer (what would this look like?).

It will be interesting to see how FedEx responds when local driver/managers stretch the rules and standards in an attempt to assert some real independence. That's where the rubber will meet the road in this seemingly endless saga: a company with a ferocious need to control, giving up control in order to preserve their idiosyncratic business model.

August 26, 2010

Massachusetts has been in the forefront of the independent contractor issue. The state has narrowed the definition of "independent contractor" to the point where almost anybody can be defined as an employee. But how do you enforce this? Where is the leverage to confront employers who are avoiding comp premiums by misclassifying their employees as independent contractors?

Whenever facts exist showing that an employer has failed to comply with this chapter, then any 3 persons may bring a civil action and that civil action shall be deemed a private attorneys general action....Plaintiffs shall prove a violation of this chapter by a preponderance of the evidence.

I do wonder what those "facts" and the supporting evidence might look like. Beyond that, this language invites lawsuits for any violation of the workers comp statute, a very wide parameter of possibilities, indeed. The focus, however, will be on premium fraud: deliberate misclassification of employees; paying people under the table; and failing to carry workers comp insurance altogether. The plaintiffs can collect up to $25,000 in unpaid premiums and an additional $25,000 in damages, plus "costs and reasonable attorneys fees."

These suits must be filed no sooner than 90 days after a policy ends (how would the "3 persons" know this date?). Then the process will take an additional 90 days. So six months after the policy ends, all hell breaks loose.

Bitter Remedy
Where are the "3 persons" likely to come from? I'm guessing that disappointed bidders on (increasingly rare) construction projects are likely to team up with disgruntled (former) employees of the successful bidder to form a merry band of 3. You might find three laid off employees/independent contractors jumping in to get back at their former bosses. Heck, the standard of "3 persons" is so low, this game is not much more difficult than playing the state lottery.

It will be fascinating to watch this new statute roll out. Simmering rivalries are going to boil over. The frictional cost of doing business in the Bay State is about to go up. The ultimate question, of course, is how effective this new weapon against premium fraud will be. To the extent it exposes unfair business practices, it will help level the playing field for all Massachusetts employers. But given the broad and ultimately vague language of the enabling statute, there is plenty of opportunity for abuse in this cure for abuse. From a blogger's perspective, of course, it's just about perfect.

August 10, 2010

Yesterday was a day of remembrance for the victims of last week's horrifying shootings at Hartford Distributors in Connecticut - our hearts go out to the family, friends, and coworkers of the deceased. Their lives will be forever changed and imprinted by this terrible event.

In chilling testimony minutes before death by his own hand, we hear the shooter in the deadly rampage calmly relaying his motive to a police dispatcher: "This place right here is a racist place...They're treating me bad over here. And treat all other black employees bad over here, too. So I took it to my own hands and handled the problem. I wish I could have got more of the people."

Omar Thornton's murderous acts left eight coworkers dead and two grievously wounded. The horrifying massacre brought to mind another racially-motivated workplace-based mass murder, the 2003 shooting at a Lockheed Martin plant in Meridian, Miss., which left 6 dead and 8 wounded. Unlike last week's shooting for which there were few if any advance clues or hints, the killer in Meridian had left a trail of violent threats and behaviors. Many who knew or had worked with Doug Williams feared and even predicted that his threats would culminate in some terrible event.

Whether racism was a trigger in the Connecticut case or not seems a moot point. Even if it were true that racism occurred, as alleged by the family of the shooter, that would not justify such a heinous and wildly disproportionate reaction. Company and union officials deny the allegations of racism and say that no such grievances had been filed or were on record. Yet Thornton's call and the allegations will likely play a factor as lawyers for the victims seek damages. If victims seek any redress beyond workers compensation, they will face a high hurdle. When litigation is successful at piercing the exclusive remedy shield, it often involves employer misconduct that is highly egregious.

In 2005 and again in 2008, courts barred tort claims for Lockheed victims and upheld workers compensation as the exclusive remedy. Plaintiffs felt they had a strong case and sued Lockheed on the basis of having been deprived of civil rights. They cited a 2004 EEOC report, which stated: "(Lockheed) was aware of the severity and extent of the racially charged and hostile environment created by Mr. Williams, which included threats to kill African-American employees," the determination by the EEOC's Jackson office said. "(Lockheed's) reaction to those threats against African-American employees was inadequate and permitted the racially charged atmosphere to grow in intensity, culminating in the shooting of 14 individuals."

Can employers inoculate against such events?
While most workplace risk can be managed and risk mitigation strategies can be adopted to eliminate or minimize hazards, when it comes to the human heart and mind, preventive strategies can be less certain. There are certainly best practices that can be put in place, predictive profiles and warning indicators that can be consulted, and good hiring and supervisory practices that can be enacted.

"Despite all the guidance and advice that can be given, the awful truth is that there really is no way to prevent tragedies like this from ever occurring. An employer can do everything "right" and yet still a rampage ensues by someone committed to carrying out a terrible crime.

That's not to say that employers should ignore the issue; they shouldn't. But we also should be careful not to draw conclusions from an incident like this too.

Indeed, as we look for answers from this tragedy, perhaps its best to acknowledge that we can never truly understand what brings people to commit evil and that despite whatever efforts we might make, something like this will sadly happen again."

August 2, 2010

Erie County (NY) executive Chris Collins was frustrated by an annual outlay of about $11 million for workers comp. So the county implemented a policy requiring workers collecting indemnity (about 300 in all) to pick up the checks in person from the supervisor. Collins hoped that this face to face contact might lead to quicker return to work for employees capable of performing light duty.

Not surprisingly, the state comp board had serious concerns with the new "return to work" program.

"It places an additional burden upon an injured worker at a time when the claimant is not medically able to return to the workplace." Oh, by the way, it's also illegal.

The Collins administration fired back, saying that the board lacks the authority to halt Erie County's new policy and that it will continue, at least for workers with temporary injuries.

Erie spokesman Grant Loomis blasted the comp board: "We were not surprised that a board full of Albany bureaucrats would raise objections to getting municipal workers back to work as soon as possible." (With his demonstrated talent for distortion, Loomis may have a future in politics.)

Loomis said Collins wants to revise the program to call in only the recently injured who might have substantially recovered and can perform light tasks, currently about two dozen people. Collins wants workers to receive their checks directly from their supervisors, who then would ask whether they could return to work in some capacity.

Compounded Errors
The Erie folks are making a couple of basic mistakes: first, they issue a blanket policy covering 300 people, even though they only want to target about two dozen. Then they ask supervisors to do things they are not qualified to do: determine whether injured workers can perform light duty tasks and, while they are at it, distribute checks. All in all, not a very good idea.

The missing piece is obvious: no one is talking to the treating physicians. Only doctors can determine the medically necessary restrictions - what the injured worker can and cannot do - and whether temporary light duty would be appropriate.

Now before Erie County implements a policy requiring doctors to show up in person for their checks, here is an alternative: establish lines of communication with the treating doctors. Track medical visits and ask doctors to update restrictions each time the employee sees the doctor. Supervisors should be kept in the loop, especially in regard to available light duty tasks, many of which are seasonal, but they should not be asked to manage the entire process. That is a job for county administrators. Heck, even Grant Loomis could help out, provided, of course, he takes a class in diplomacy. Angry rhetoric might work for politicians stirring up the masses, but it is usually counterproductive in the challenging world of workers comp.

July 12, 2010

Today we examine one of the great conundrums in workers comp claims: the old injury that may or may not be defined as a new injury.

In 2006 David Poulton worked for Martec Industries in Rochester, New York, as a laborer. Poulton had a bad back, having already filed workers comp claims in 1998 and 2000. When he visited his treating physician in June 2006, he had the same old complaint: his back hurt, as it had virtually every day since his first injury in 1998. He told his doctor that he re-injured his back at work the prior day while lifting materials. At this appointment, a discouraged Poulton told his doctor he wanted to quit working.

In consideration of Poulton's long-established problem, apparently compounded by the prior day's incident, the doctor disabled him from work. He cited "old injuries and his continued decline." He characterized the situation as involving "episodic increases in pain" that had troubled Poulton for several years. The doctor, in fact, had been encouraging Poulton to stop working prior to this particular visit.

An independent medical exam determined that Poulton suffered from degenerative disc disease and that his disability was caused primarily by preexisting problems.

So is this a new injury, as reported by Poulton, or simply the recurrence of an old one?

Who Pays?
An administrative law judge found in Poulton's favor, determining that the lifting incident at Martec aggravated the pre-existing condition. However, this ruling was reversed by the appelate division of the NY supreme court, which found no evidence of a new injury and remanded the case for further consideration.

Poulton may yet succeed in re-establishing his workers comp claim, but it will draw upon the resources of the carrier for his prior employer, not the carrier for Martec. As is usually the case in workers comp, the narrative is driven by the evidence. In this case, the history of pain and suffering is so unrelenting and consistent, the "new injury" theory goes up in smoke. With his working days apparently at an end, Poulton probably does not care who pays for his troubles. He has suffered for a long time.The remaining question, of course, is who pays and how much.

June 23, 2010

We return to the beautiful state of Maine, where moose wander the woods looking for whatever interests a moose and where employers self-insured for workers comp look for a fee schedule. The moose are a lot happier than the self-insureds. As we have pointed out in prior blogs, the legislature mandated the creation of a fee schedule for medical services nearly 20 years ago. There is still no fee schedule. So while insurance carriers are free to negotiate with hospitals to determine rates, self-insureds - Bath Iron Works (BIW) the most notable and vocal - are stuck paying the exorbitant "usual and customary" fees.

BIW has sued a number of times to move this process to a conclusion. Most recently, they sued to remove Paul Dionne, chairman of the workers comp board, from heading up the fee schedule committee. Dionne is also board chairman of Central Maine Healthcare Corp., which includes Central Maine Medical Center in Lewiston. While he claims objectivity, Dionne is in an untenable situation: you do not ask a medical provider how much they want to cut their own revenues.

In deference to the "appearance" of a conflict of interest, and perhaps in an acknowledgement that after 20 years, enough is enough, Dionne has recused himself from any further involvement in the fee schedule process.

"It's a hard decision because this is a very important issue for the workers' compensation system," he said. "But I've got a lot of confidence in the board members."

So from here on Dionne will follow the debate from the sidelines: no conflict, but plenty of interest. His confidence in the other board members might give rise to anxiety for BIW. Regardless, this is surely a step in the right direction.

When it comes to the long-mandated, long-absent fee schedule, patience is wearing a bit thin in Maine. The moose may wander where they choose, but self-insureds are caught in a very expensive trap. Too bad they don't sell fee schedules at L.L. Bean.

June 18, 2010

The saga of the New York self insurance trusts continues. We reported in April that justice had been served by Judge Kimberly O'Connell, who ruled that requiring solvent trusts to pay for the sins of insolvent trusts was unconstitutional. Now, according to Work Comp Central (subscription required), O'Connell herself has been overruled by a four judge panel, which has reinstated the assessments on the solvent trusts. While the justices are undoubtedly correct in their literal interpretation of the law, the ruling comes under the heading of "let no good deed go unpunished." It may be legal, but it is in no way just.

Here's the (rotten) deal: 15 self-insurance trusts are shut down by the state. They ran out of money because they under-priced their premiums, under-reserved claims and sold insurance like a ponzi scheme. Oh, they also paid themselves handsomely for their fine work as administrators. These defunct trusts are in the hole to the tune of $500-$600 million. State oversight? There wasn't any.

Who Pays?
The WCB decides to assess the remaining, solvent trusts to make up the deficit. In other words, the "joint and several liability" within a trust group now expands to include liability for all trust groups. To be sure, the enabling legislation allows the WCB to do this. After all, someone has to pay and this is New York, so deal with it. In this case, the trusts that operated by the rules, fairly pricing and fairly reserving claims, are penalized for the sins of the clowns who are no longer in business.

As we pointed out in yesterday's post, a task force has recommended that New York get out of the self insured trust business. We concur. Any state that loads the dice of "joint and several liability" to this absurd point makes a mockery of the concept. Self-insurance is based upon the ability to limit risk and contain exposures. Given New York's operating rules for self-insured trusts, conventional management tools are rendered useless. The liabilities of operating a group trust are uncontrollable and virtually infinite. Why would any company choose this path for managing risk?

June 17, 2010

Two years ago, New York Governor Patterson convened a task force to examine the status of self-insured trusts for workers comp. He was forced to take action when a number of trusts failed, most notably those administered by Compensation Risk Managers (CRM). The insolvent trusts left behind a deficit of $500 million. (See our prior blogs here and here.) The task force recently presented its findings to the governor. In 189 pages of closely reasoned text, the commission recommends that New York abandon this particular model for insurance. The risks, in their view, outweigh the benefits and perhaps most important, the state lacks the resources to adequately monitor how these groups operate from day to day. You cannot trust the trusts.

The commission zeroed in on what it considers to be the (fatal) flaws in the group trust model:
: Joint and several liability, where prudent employers are held accountable for the actions of the weakest members
NOTE: it's one thing to have "joint and several" liability; as the commission points out, it's quite another to actually collect on these obligations: less than 15% of what is owed by participants in the failed trusts has been collected to date.
: potential conflicts of interest involving group administrators and TPAs, who seek to grow the business by keeping rates artificially low and by understating losses
: inability of trustees to understand what is really going on
: inability of the state to monitor and assess the true status of each operating trust

Death Spiral
Self insurance groups currently operate successfully in 18 states, but not in New York. As we pointed out in a prior blog, the NY comp board tried to assess all trust members - not just those in the insolvent trusts - to make up the $500 million deficit. The solvent trusts sued and for the moment, have prevailed. (The Held decision can be read in the appendix of the task force report).

There is a certain logic to assessing all members for the failings of a few, but this only works when you are dealing with very large numbers, so the individual assessments are relatively small. This was not the case back in 2008, when there were about 18,000 employers participating in NY trusts. After all hell broke lose, the number dwindled to 4,000.

The crippling assessments issued by the comp board to cover the trust deficit created a death spiral, with solvent trusts folding their tents and moving out of the state. Even though those assessments have been retracted by the courts, that action comes too late to save the viable trusts. New York probably has no choice but to abandon the group trust model.

Rotten Apples
The New York narrative, as written by the governor's commission, attributes the trust failures to fatal flaws in the business model. But where New York sees an insurance approach that cannot work, other states see vulnerabilities that can be addressed through prudent management. Self-insured groups still operate profitably and effectively in many states. What happened in New York was the result of rogue and perhaps felonious trust management combined with inadequate state oversight. The state failed to see the true status of the troubled trusts in a timely manner and then took exactly the wrong action to correct it. That's not a problem with trusts themselves, but with the people entrusted to run them.

June 15, 2010

There are five towns in Massachusetts that do not carry workers comp insurance for their employees. Four of them - Dana, Prescott, Enfield and Greenwich - are under 412 billion gallons of water: they were submerged during the 1930s in the making of the Quabbin Reservoir, which supplies drinking water to Boston and a number of suburban cities and towns. The fifth, Tewksbury, voted to join the workers comp system way back in 1914, but a clerical error recorded the positive vote as negative, resulting in nearly 100 years of a go-it-alone, pay-as-you-go, hope-for-the-best approach to comp among the residents of the town, now nearing 30,000 people.

To date, Tewksbury has been pretty lucky. The town has paid out between $100,000 and $189,000 per year for claims in recent years. That's not bad, considering that one failed back can run upwards of $500,000. But just because Tewksbury has been lucky does not mean they are going to stay lucky. The liability to the town's tax payers is precariously open-ended. In these challenging times of reduced budgets for all municipal services, the specter of an unanticipated claim could put Tewksbury on the verge of bankruptcy. Because the town did not participate in the comp system, injured workers had the option of suing for damages unavailable in the comp system.

As we read in Insurance News Net, last month the town meeting voted to adopt workers comp coverage. (Presumably, the vote was properly recorded this time.) It will take a few years to develop an experience rating, based upon actual losses and statutory benefits. Overall the cost of insurance will run a bit higher than an average loss year, but that's price you pay for transferring the risk to a third party.Comp will finally become a set cost in the town budget. A workers comp policy comes with a comfort factor that cannot be measured simply in premium dollars: any claims, large or small, any catastrophic losses involving multiple town employees, will now be covered by insurance. That should help town residents and officials sleep a little better at night.

As for the surviving citizens of Dana, Prescott, Enfield and Greenwich, displaced long ago by the state's appetite for water, comp is not a likely component in their dreams. I imagine they welcome a nocturnal glimpse of the communities where they once lived and waken with sense of sadness and of loss.

June 7, 2010

In the 1930s, when the Fair Labor Standards Act (FLSA) and the National Labor Relations Act (NLRA) passed, these two laws offered labor protections to workers nationwide - with the exception of two large segments of the work population: domestic workers and agricultural workers. These groups were excluded in the interests of political expediency since a large proportion of both groups were comprised of blacks and women, two populations that weren't generally afforded full rights in many public and social arenas at the time.

With the 33-28 vote passage of the New York State Domestic Workers' Bill of Rights in the Senate, New York is likely to become the first state in the union to remedy that. The Bill is not yet final law - first, the Senate bill needs to be reconciled with the bill passed by the state Assembly and then Governor Patterson must sign it.

Bill Number S2311D would "... amend the labor law, the executive law and the workers' compensation law, in relation to establishing regulations regarding employment of domestic workers including hours of labor, wages and employment contracts." The purpose of the bill is stated as being to: "... provide domestic workers with a Domestic Workers' Bill of Rights which would set out the responsibilities of employers and employees as well as rules for paid holidays, paid vacations and standard overtime."

It's estimated that there are about 200,00 domestic workers in New York, 93% of which are women and 95% of which are people of color. Because the Bill covers all domestic workers - both legal and illegal - it's been fairly controversial. Opponents decry the increase in regulation, which some say will result in fewer jobs. Many opponents also bridle against any protection for illegal workers, feeling that offers a legitimacy. Proponents say that it will go a long way to regulating an industry that has no standards or oversight and afford basic worker rights to a largely ignored worker population. Many of those in favor of the bill also think that shedding light on some of unregulated business segments which have historically been magnets for undocumented workers will be an important step in coming to grips with the hiring of illegal workers.

In a column in the New York Daily News, Albor Ruiz notes the irony that although we trust these domestic workers with our children, our elderly parents and our homes, they are among the most exploited of society's laborers. He cites a study by Domestic Workers United and DataCenter, which found that, "...26% of domestic workers make less than the poverty line or the minimum wage rate. Also, 33% say they have been abused verbally or physically, and half report working overtime but not being paid for it. Health insurance from their employer is a rare luxury - only 10% get it."

From our viewpoint, we think all employers have the responsibility to provide a fair and safe workplace for all employees, regardless of the work population involved - legal, illegal, here in the US, or offshore in other countries. It's simply the right thing to do. But for those who don't share this value, it generally makes sense from a cost perspective, too. In our experience, doing the right thing by employees is less costly in the long run.

June 3, 2010

As a service for Insider readers who do not follow the Flathead Beacon, we bring you the western Montana saga of Brock Hopkins, who either was or was not an employee of Great Bear Adventures when he had a great bear adventure of his own, much to his detriment. Hopkins, 23 at the time, appears to have been an occasional worker at the seasonal attraction. On November 2, 2007, he showed up at the park, took a few hits on his marijuana pipe (not prescribed by a doctor) and checked in with the park owner, Russell Kilpatrick, who was on the phone at the time.

Kilpatrick wanted Hopkins to repair a gate. After completing the task, Hopkins went to ask Kilpatrick if there was anything else that needed doing, but Kilpatrick was asleep (hibernating?). So Hopkins, after carefully placing his marijuana pipe on a storage shed outside the bear pen, mixed up some feed and entered the pen. He was attacked by a bear and sustained severe injuries to his legs. He barely managed to crawl out of the pen.

Contract of Hire
In subsequent court proceedings, Kilpatrick argued that Hopkins was a volunteer at the park. While he denies asking Hopkins to feed the bears, he admits that he did ask him to adjust the gate. And, yes, he did slip him $300 shortly after he was released from the hospital.

Judge James Jeremiah Shea, of the Montana Workers' Compensation Court, disagreed with Kilpatrick. In his written decision, Judge Shea managed to reference the (marijuana stoked) comedy, "Harold & Kumar Go to White Castle:"

"It is not as if this attack occurred when Hopkins inexplicably wandered into the grizzly pen while searching for the nearest White Castle. Hopkins was attacked while performing a job Kilpatrick had paid him to do - feeding grizzly bears."

Kilpatrick denies asking Hopkins to feed bears, who may or may not have needed feeding. And one might be inclined to raise the issue of the marijuana impeding Hopkins's judgment. Judge Shea took these factors into account and concluded that there was contradictory testimony on the issue of feeding the bears and most important, even though Hopkins smoked marijuana on the job, his being stoned was not a significant contributory factor in the injury. (If Hopkins could fix a gate while stoned, he could presumably feed the bears.)

Management's Burden
Kilpatrick is appealing the ruling. He has a high mountain to climb if he wants to prove that Hopkins was not an employee. I'm not sure he is helping his cause when he indignantly stated the following:

"I became very very angry because I then knew what had happened. In my opinion Brock could not resist one last time of harassing the bears with his habit of blowing smoke in their faces for God only knows what reason and in direct defiance of my telling him NOT to disturb them!!!"

Alas, Kilpatrick is learning a tough lesson in management: you are responsible for the (stupid) actions of people who perform work-related tasks for you, whether or not you formally hired them - and in this case, whether or not you specifically asked them to perform a given task. (If a supervisor is napping, employees are pretty much on their own.)

The fact that Hopkins was prone to blowing smoke at the bears and Kilpatrick still allowed him on the property weakens his case considerably. (As Hopkins left his pipe on the shed prior to entering the pen, it is unlikely that he provoked the bear in this particular manner on that fateful day.)

Meanwhile, the youthful Hopkins has knee problems and possibly permanent muscle damage. He may want to find himself a medical practitioner to write him a script for marijuana, which is available legally in Montana. Blowing smoke can ease the pain, as long as you don't direct it into the face of a sleepy or hungry bear.

June 1, 2010

With a population around 1.5 million and a land mass the size of New England, Idaho is probably not the first state that comes to mind in the national struggle to contain medical costs. Nonetheless, orthopedists in Idaho have managed to attract the attention of the federal government in their effort to increase rates of reimbursement for services. The feds are not happy with the Idaho docs.

The first problem came with the workers comp fee schedule. The "Resource-Based Relative Value system" set a price of $88 for most orthopedic procedures. The 65 or so orthopedists in Boise got together and decided to refuse to treat workers comp cases. As a result, the Industrial Commission raised the rates by 61 percent. Score one for the docs.

Emboldened by their success, the docs refused to accept Blue Cross patients under the prevailing fee scheme. But in taking on the conventional health care (as opposed to the state-based workers comp system), the docs crossed a line from a program run exclusively by the states into a behemoth system in which the federal government plays a big role. The feds came down hard with charges of violations of the Sherman Anti-Trust Act. Prosecutors sued five doctors, the Idaho Orthopaedic Society and the Idaho Sports Medicine Institute in Federal Court. If you think about it, it's not hard to see how a bunch of doctors agreeing to hold out for higher reimbursements might fall under the general heading of "price fixing."

As we have blogged rather frequently, Massachusetts has the lowest fee schedule in the nation. Most orthopedists have responded by refusing to accept the (ridiculously low) rates. But unlike the orthos in Idaho, the MA docs deal with the palty rates on their own. By refusing to accept them, they compel insurers to negotiate higher rates. These negotiated rates vary from doctor to doctor. There is simply no way and no need for the hundreds of orthopedic doctors in MA to agree on rates:it would be like the proverbial herding of cats.

In Idaho it's different. The state's unique characteristics - the large land mass and relatively small population - make a genuine "conspiracy" possible. The docs all know one another. So what seemed to them a fairly innocent attempt to leverage the system for higher reimbursement rates appeared to the feds as a conspiracy. In other words, their mistake was in sharing information about the rates and in uniting to take action against them. Had they acted individually, there would have been no violation of the anti-trust act.

War on Docs?
One blogger with roots in the libertarian Ludvig Von Mises movement sees in the government action a declaration of war against doctors. He believes that doctors will be "forced" to accept the government rates. Not exactly. As we have seen in Massachusetts, individual doctors can accept or reject patients as they please. What they cannot do is collude with fellow doctors to achieve a fee schedule to their liking.

With rising medical costs looming over every aspect of our economy, this little skirmish in Idaho is simply the opening salvo in what is likely to be a prolonged and painful battle to contain the costs of health care. It's no accident that the Obama health care bill punted on the cost containment issue. One person's cost containment plan is inevitably another's cut in pay.

In the coming months, the battle of Idaho will move into the great metropolitan areas of our country. Just imagine the formidable barricades to be erected by the men and women in blue scrubs! This will be an interesting brouha, to say the least.

May 25, 2010

The Insider scans the world of risk in a risky world. We try to zero in on hazards that might be overlooked in the rush of daily commerce. In that spirit we bring you the distasteful but necessary tale from the New York Times involving bus drivers in New York City, a number of whom have suffered prolonged disability due to the unsanitary habits of riders.

Unhappy riders may express their displeasure in any number of ways, including the unfortunate choice of spitting on the bus driver. I am sure we all sympathize with these uniformed public servants who are simply doing their jobs. You cannot please everyone all the time, especially in the Big Apple.

It's what happens after these incidents that is really puzzling. One third of all the assaults that prompted a bus operator to take paid leave in 2009 involved spitting, 51 in all. The MTA defines these "spat upon" incidents as assaults. The 51 drivers who went on paid leave after a spitting incident took, on average, 64 days off work -- the equivalent of three months with pay. One driver spent 191 days on paid leave.

Before we jump to conclusions like irate citizens running after a bus, let's listen to John Samuelson, president of the transit union:

"Being spat upon -- having a passenger spit in your face, spit in your mouth, spit in your eye -- is a physically and psychologically traumatic experience. If transit workers are assaulted, they are going to take off whatever amount of time they are going to take off to recuperate." [Emphasis added.]

Mr. Samuelson has given us one of the most compelling definitions of disability I have ever encountered: workers are going to "take off whatever amount of time they are going to take off to recuperate." It's not a matter of medically (or psychologically) necessary time away from work, but the amount of time the worker deems necessary. Who needs a doctor when the drivers are empowered to determine the extent of their own disabilities?

Tough Times, Not-So-Tough Drivers
The MTA is facing a budget shortfall of $400 million. It's tempting to conclude that tightening up a bit on eligibility for "Post Traumatic Spitting Syndrome" (PTSS - you first read about it here!) might help reduce that deficit. Heck, it might even make the riding public a bit more sympathetic to bus operators.

Nancy Shevell, the chairwoman of the transit authority's bus committee, questions whether three months' off is a bit excessive.

"You have to wonder if you can go home and shower off, take a nap, take off the rest of the day and maybe the next day," she said. "When it gets strung out for months, you start to wonder."

As we peruse the annals disability - mostly real and painful, occasionally trumped up - we do indeed begin to wonder who is in control in New York, just who is driving - in this case, not driving - the bus.

May 18, 2010

Arizona has been getting a lot of criticism lately. Frustrated by the federal government's inability to confront the undocumented worker problem, they took matters into their own hands and passed their own law. Now police are required to stop anyone who "looks illegal" and ask for papers. I'm not sure that illegal immigrants from Ireland have much to worry about, but Hispanics - who make up one third of the state's population - had better be careful. The Arizona legislature missed an opportunity by not requiring Hispanics to wear their documents in a packet around their necks. Perhaps they can amend the law.

I have been on board with the need to deal with illegal immigration. Back in 2006 I strongly endorsed the congressional initiative to build a wall at the Mexican border. This new version of the "Great Wall" offered an tremendous opportunity to ineffectively seal the border, build a tourist attraction/theme park and temporarily employ thousands of undocumented workers until the project was finished, at which point we would escort the workers through the wall back to Mexico.

Some people feel that Arizona has created a law that penalizes people simply for looking Hispanic. Others believe that only the federal government has the power to deal with immigration issues. As we await the legal challenges that may or may not resolve the issue, we need to shift gears and recognize an area where the maligned state has actually gotten it right.

Public Versus Private
I am referring, of course, to the decision to privatize the state fund for workers comp insurance. Arizona has provided insurance since 1925 through the State Compensation Fund (SCF). With 40 thousand employers and $191.8 million in premiums, SCF is the largest workers' compensation carrier operating in the state, with a 31.5 percent market share.

One of its subsidiaries, SCF Premier Insurance Co., is the second-largest, with $34.1 million in 2009 direct premiums written. Another subsidiary, SCF Western Insurance Co., is the 10th-largest, with $10.7 million in 2009 direct premiums written. In other words, SCF is by far the dominant player in the insurance market for comp.

Under the recently signed law, SCF will become a mutual fund in 2013. This move should open the door for more carriers to do business in Arizona, which will join the vast majority of states in operating a private insurance system for workers comp. I find it encouraging that in this area, at least, the goal is not to make the rest of us "Arizonians," but to have Arizona join the mainstream of American culture. Bienvenida, las damas y caballeros!

May 12, 2010

Massachusetts has the lowest workers comp rates among the major industrial states and just about the lowest rates in the nation. The cost of comp in the other New England states is roughly double that in the Bay state. So you would think that the rates in MA would at best stay the same from year to year, or increase slightly. Well, think again. Martha Coakley (yes, that Martha Coakley), the current and future Attorney General, has brokered a deal for yet another rate reduction: an average of 2.4 percent across all classifications. The insurance industry had argued for an increase of 4.5 percent. I guess they did not exactly convince Martha.

The AG thinks that the insurers are overstating future losses. In my experience with carriers operating in MA, they are actually understating losses, but that's a matter for the actuaries. If, as the AG argues, rates are too high in MA, what can you possibly make of rates in the other New England states and across the country? Are MA employers really that much better at preventing injuries and at getting injured workers back to their jobs? If you buy that argument, I have a nice bridge spanning the Mystic River that you might be interested in owning.

The trends in MA are no different from those across the country: while frequency is down, severity is rising at an alarming rate. In MA, severity is spiraling out of control. The state's generous wage benefit structure, combined with a first rate (and pricy) medical system and a judiciary that tilts strongly toward the injured worker, are making six figure reserves all too common. It's truly puzzling that the AG can look at the performance numbers for the insurance industry and conclude that rates are too high. They are way too low.

Politics: Local and Loco
It's not hard to fathom why an elected official chooses to drive deflated rates even lower. It's politically popular; any rate increase - even the marginal bump proposed by the industry - would be met with howls of outrage from small businesses, who are already under seige in a struggling economy. Strange to say, the depressed cost of comp is subsidizing the otherwise high cost of doing business in MA.

The AG is not finished with her rate scalpel: she thinks a few more points can be carved out next year. It will be fascinating to see how the carriers respond. Not too many folks think there is much money to be made in MA comp. And that rapidly dwindling club is about to get a lot smaller.

May 7, 2010

We recently blogged the collapse of the self-insurance trust market in New York. When CRM Holdings, a Bermuda based operator of self insurance groups (SIGs), folded like a house of cards, the New York comp board went after the healthy SIGs to cover CRM's liabilities. They hit these innocent folks with a whopping $11 million assessment. As a result, a number of SIGs abandoned the New York market, only to learn two years later that the comp board's assessments were illegal. Oh, well. It seemed like a good idea at the time.

Now we move a few miles to the east and find a similar situation brewing in Connecticut. Municipal Interlocal Risk Management Agency (MIRMA) has been writing comp policies for municipalities since 2002. The great thing about comp is that it's so easy: offer coverage at rates lower than competitors, collect the premiums and pay the claims as they come in. Unfortunately, the premiums MIRMA has been collecting are not covering the claims generated by the insured municipalities. So MIRMA is in the uncomfortable position of trying to collect additional funds from cash-strapped municipalities. For example, North Branford owes $600,000, Westbrook owes $158,000; and Killingworth owes $71,188. In these trying times, that's not exactly chump change.

The legislature passed a bill to give the municipalities more time to come up with the money. The bill would have amended the amount MIRMA was required to keep in its reserves, and thereby allow the towns to pay the amounts they owe, interest free, over four years. Governor Jodi Rell is not buying that approach; she vetoed the bill. The governor issued a statement:

MIRMA has been undercapitalized since its creation. Although it has been given several years to remedy its financial situation, it has failed to do so. Now, providers are not being paid and injured workers are at risk of not being treated. MIRMA can no longer exist in its current state of outright capital inadequacy.

The governor went on to state that MIRMA stopped paying workers' compensation claims simply because it does not have the money to pay, which is "wholly unacceptable." She wrote that MIRMA's deficit has grown by more than 300 percent in the last six years, and is predicted to reach well over $15 million by 2013. That might seem small by CRM standards - their deficit was upwards of $50 million - but then again, Connecticut is a lot smaller than New York.

Untrustworthy Trusts
The governor has ordered a complete review of MIRMA's finances. I could write the report without even looking at the books. In their effort to build market share, MIRMA underpriced their policies. They probably spent a lot on marketing and frills. To balance the books, they under-reserved claims, hoping to cover the cash short-fall by building market share. It worked until it didn't. Now they have run out of money, so they cannot pay the claims. If the auditors have a sense of history, they will conclude that MIRMA operates like a subsidiary of CRM.
NOTE: CRM, still operating in California, appears to be on the ropes.

Connecticut's short term solution - requiring the insured municipalities to come up with the money - is fair, if hardly feasible. At least Connecticut is not going to penalize the municipalities who declined to participate in what appears to be MIRMA's modified Ponzi scheme. That's good. But it remains to be seen how cash-strapped municipalities - already facing substantial budget cuts - are going to come up with these substantial sums of money.

When it comes to self-insurance trusts in the Empire and Nutmeg states, it's time to put away the beer kegs and cancel the golf outing: the party is over.

April 26, 2010

We have been following the implosion of self insurance groups (SIGs) in New York. Back in June 2008, SIGs operated by Compensation Risk Management (CRM) collapsed. CRM had grown their business by offering comp coverage at very low rates. For a long time, they were able to maintain an illusion of profitability by under-reserving losses. Eventually, it all caught up with them.

When the CRM SIGs went belly up, the state worker's comp board looked around for some free cash to pay for the $450 million in unfunded liabilities incurred by CRM. They decided to penalize all the SIGs that had been operating in the black. In a move stunning for its arrogance (facilitated by legislation passed in 2008), they decided to raise assessments on these SIGs from the modest annual total of $104,000 to a whopping $11.1 million.

In other words, the insurance groups operating prudently - charging adequate premiums, controlling losses and turning a modest profit - were forced to make up the losses incurred by a company operating like a ponzi scheme. Well, as they like to say in New York: "You gotta problem with that?"

Acting state Supreme Court Justice Kimberly O'Connor had a problem with it. She ruled on April 14 that the 2008 laws that empowered the comp board to assess the SIGs were unconstitutional, as were the assessments issued by the board.

Justice Too Late
Unfortunately, judicial relief comes long after the once-profitable SIGs have folded their tents. First Cardinal once operated 13 SIGs in New York, with $166 million in premium. When hit with the exponential increase in assessments, First Cardinal decided to move its business out of the state (in itself a sure sign of management that was paying attention). They stopped writing in New York and laid off the 57 (innocent) workers who were doing a good job of managing the New York business.

You may recall the old saying: "The wheels of justice grind slow but they grind exceeding fine." In this case, justice - and fairness - were eventually served. But the pace of the process seems to have crushed the parties harmed by an unjust law.

Of course, the comp board believes that the assessments are legal and is planning to appeal. That should add a few more months to this ridiculous situation.

April 14, 2010

Alan Schwarz of the New York Times has written a fascinating series on workers comp in California: specifically, a cottage industry that has sprung up securing comp benefits for retired National Football League (NFL) players. The interesting part is that the claims are not limited to players from teams based in California. In its effort to protect transient workers (e.g., truckers, flight attendants), California offers recourse to anyone who temporarily passes through the state. Thus, professional athletes on any teams that compete in California can file for benefits, even if years have past and even if it was just a single game. Needless to add, the carriers for these out-of-state teams are trying to get the California system ruled off-side.

There are currently about 700 former NFL players pursuing benefits. Most of the injuries are orthopedic - bad backs, shoulders, knees, ankles. (We will deal with a claim for dementia in a future blog.) Two points should be made about these orthopedic injuries: many are cumulative in nature, so there need not be an acute injury specific to the sporting event in California; and virtually anyone who played professional football is likely to have one or more injuries directly related to the game.

Attorneys Take the Field
Behind every loophole lurks an attorney. In this situation, two former NFL players, now attorneys, are leading the charge: Ron Mix, a lineman for the San Diego Chargers in the 1960s, and Mel Owens, a linebacker for the Los Angeles Rams in the 1980s. Mix and Owens help former players from teams across the country to file claims in California. There is some question, however, about the quality of help that they offer.

Once deemed eligible for benefits under California law, players could opt to receive lifetime medical benefits for any medical expenses related to their football years. Think about it. That might include shoulder and back surgeries, hip and knee replacements, not to mention treatment for dementia related to on-field concussions.

Would it surprise you to learn that over 90 percent of the players entering the California comp system decline the lifetime medical coverage and instead, settle for a lump sum payment? Most players have accepted an extra $60,000 to $100,000 to settle their claim for future medical coverage. That amount would pay for one, maybe two surgeries.

Why settle out the medicals? Settling avoids the necessity of a trial (in these instances, not by jury but by administrative law judge). It puts a significant amount of money in the players's pockets sooner rather than later. And, of course, it puts money in the pockets of the attorneys, which lifetime medical benefits do not.

Faulty Judgment?
Judge Norman Delaterre, who sits in Santa Ana, notes that judges must consider whether proposed settlements are fair. "These players are represented by experienced, competent attorneys - the players themselves, they're adults. Presumably they've discussed the ramifications of the various types of settlements with their attorneys and they've come to a decision to accept the lump sum. Even though the judge in the back of his mind is thinking, you know, if it were me, maybe I wouldn't do this."

Hey, it's all just a game, right? The players took their chances on the field. Now they roll the dice in the corridors of comp system. If they end up doing what's in the best interests of their attorneys, what harm is there in that? They get some cash, the attorney gets a nice fee, the insurer gets a settled claim with no future exposure. One door opens, another one closes. When and if the future medical issues arise or the dementia sets in, well, someone else will be on the hook for that.

There are a lot of people unhappy with California's wide open door, above all, team owners and insurance carriers outside of California. They are going to do their best to shut the Golden State's door - the only such door, we should add, that is available to the walking wounded veterans of the NFL wars. We will keep readers posted on any developments.

But enough with the old folks who can no longer play and whose names we barely remember. The NFL draft is just weeks away. Hope springs eternal for every team, even the Detroit Lions. I can't wait to see what happens.

April 12, 2010

In our first blog of the Upper Big Branch mine disaster that took 29 lives last week, we made no attempt to point fingers. It was a time for mourning, for acknowledging the sacrifices of the brave men whose jobs never see the light of day. Well, now that the final death toll has been rendered - there were no survivors - it's time for some accountability. Let's begin at the top.

The CEO for Massey Energy is Don Blankenship. He is a man of humble and hard-scrabble beginnings, raised by a single mother. He worked as a union miner (an irony that will soon become evident) and attended Marshall University, where he received a degree in accounting. He worked for Massey Energy in the accounting department. where his fiscal skills and his penchant for cost controls helped him rise in the ranks, culminating in his becoming CEO in 2000. He is a vehement foe of organized labor, along with government regulations and the "the hoax and ponzi scheme" of global warming. (His business is coal, so his disbelief in global warming runs as deep as his mines.) Blankenship constantly battles regulators over safety infractions, including adequate ventilation of the mines (which at this point appears to be a major factor in last week's exlosion).

While famous for his focus on production, Blankenship does give lip service to safety. In a July 2008 depostion defending Massey Energy's safety record, he appears to talk the talk:

"As an accountant, I know that safety is an important cost control. So even if I were so calloused, which I am not, as to believe that safety should be sacrificed for production, I would understand that it doesn't make any sense because the accidents and so forth cause you to have more costs."

But somehow, in the dust and drive of production goals and profits, safety falls by the wayside. Blankenship does not walk the walk - or, as we are talking mines, he does not crawl the crawl.

Management Styles
There are clues to his management style in his personal life (a rather critical summary of which appeared in Business Week). His maid quit, saying the working conditions were intolerable. Ever the bean counter, the politically connected Blankenship successfully fought her application for unemployment benefits. The case wended its way to the West Virginia Supreme Court, where the maid prevailed. Two of the court's justices said that "the unrefuted evidence" before the state unemployment agency showed that Blankenship "physically grabbed" the maid, threw food after she brought back the wrong fast-food order, and tore a tie rack and coat hanger out of a closet after she forgot to leave the hanger out for his coat.

"This shocking conduct" showed that she was, in effect, fired because she felt compelled to quit, the justices said. They said the conduct was "reminiscent of slavery and is an affront to common decency."

The same, alas, could be said of Blankenship's management of Massey Energy.

Humble No More
Don Blankenship earned about $11 million in 2008. Not bad for a man of humble beginnings. As for the survivors of the miners killed last week, they must turn to the West Virginia workers comp system, which will provide indemnity for widows and dependents. (It appears that Massey Energy is self insured for comp - a penny-pinching decision that is about to haunt Blankenship, big time.)

The company is also vulnerable under West Virginia law for civil suits: comp's "exclusive remedy" provision can be transcended if you can prove "deliberate intent." I would say that repeated stalling, appealing, stonewalling and dismissal of documented safety violations is likely to reach the "deliberate" standard.

You may remember the song "Sixteen Tons" - made famous by Tennesse Ernie Ford:

You load sixteen tons, what do you get?
Another day older and deeper in debt.
Saint Peter, don't you call me, 'cause I can't go;
I owe my soul to the company store.

Surely the miners had souls to put in hock. That may be more than can be said for the man who currently runs the company store.

April 5, 2010

Dr. Diane Shafer practices medicine in the Tug Valley area of West Virginia. The Tug River runs along the Kentucky border. It's a hard-scrabble part of the state, famous mostly for the Matewan coal mine strike in the 1920s. (Mother Jones, featured recently in one of our blogs, led the miners in an unsuccessful attempt to establish a union.) With a declining population and a median household income of $27,000, the area is dirt poor.

Which brings us to Dr. Shafer, an orthopedic surgeon. She may practice in a desperately poor part of a relatively poor state, but she is doing pretty well for herself. We read in the Insurance Journal that prosecutors have been very busy tracking her activities. A January raid of her bank holdings yielded more than $500,000 in cash and valuables. About half that haul consisted of stacks of $100 bills found in one of her safety deposit boxes.

Where did the cash come from? Don't bother looking for surgical fees. Dr. Shafer sells drugs. A state-federal probe tracked hundreds of people who entered Shafer's storefront clinic daily, paid between $150 and $450 cash, and left with pain drug prescriptions. Evidence included photos showing a line of people waiting to see Shafer that reached the sidewalk and stretched down the street, with as many as 30 people waiting outside. Dr. Shafer was not just running the most popular ortho practice in Mingo County, population 26,000. It must have qualified as the most popular ortho practice in the world.

FBI Special Agent James Lafferty said in a sworn statement: "The condition of Dr. Shafer's office during the execution of the search warrant indicated that it would be physically impossible for her to utilize her examining tables. She indicated that she examined her patients 'at another location.''' In the back of her pick up truck, perhaps?

Dr. Shafer has parlayed her wealth into an interest in politics. She is running for the state senate with the slogan "You are Safer with Shafer." Well, you certainly feel less pain when she is doing her thing. On her platform, outlined in rather primitive form at her website, she proposes giving free prescriptions to senior citizens. She does not specify which drugs she has in mind, but we can probably guess.

This is not the good Doc's first encounter with law enforcement. Her license was suspended in the 1990s for bribery and falsification of evidence in a workers comp case. (Why am I not surprised?) Eventually, her license was reinstated. The latter court noted: "The evidence is undisputed that the appellee is a hardworking, valuable member of her medically under-served community, and her technical ability to practice medicine is unquestioned."

History Repeating Itself.
Mingo County may be poor, but it has a fascinating history, summarized here. The origin of the county is worthy of a Faulkner novel:

Mingo County is the youngest county in the state, formed by an act of the state legislature in 1895 from parts of Logan County. Its founding was related to a legal protest by a moonshiner who claimed that the Logan County Court that had found him guilty did not have jurisdiction over his case because his still was actually located in Lincoln County. A land survey was taken and discovered that the defendant was correct. The charges were then refilled in Lincoln County court. Although the moonshiner was ultimately found guilty of his crime, the state legislature was made aware of the situation and determined that Logan County was too large for the expeditious administration of justice and decided to create a new county, called Mingo. The county was named in honor of the Mingo Indian tribe that had been the earliest known settlers of the region.

Dr. Shafer appears to be carrying on in the tradition of Mingo's founding moonshiner. She is also likely to end up as he did, with a conviction. The shutting down of her wildly popular practice may well drive the good folks of Mingo back into the hills in pursuit of more traditional methods of mitigating pain: no prescription is required; the medication comes only in liquid form; and there are no warning labels, but the risks of consuming it are beyond calculation.

March 9, 2010

Henri Cyr was a part-time mechanic for McDermott's, a Vermont company that transports milk from dairies to processing plants. A co-worker offered Cyr a bottle of Mountain Dew. As he was not thirsty at the time, he put the bottle in the workplace fridge. About a week later the fridge was cleaned out, so Cyr took the bottle home.

Some time later, Cyr came home after a workday, drank a couple of beers and then, feeling thirsty, he opened the bottle of Mountain Dew and took a deep swallow. Alas, the bottle contained toxic cleaning fluid. Cyr felt a severe burning sensation in his mouth, throat and stomach. He was rushed to the hospital, where blood work and urinalysis revealed that his blood alcohol level was .16, well above the legal limit for driving.

So here is the question for workers comp aficionados: is Cyr's (severe) injury compensable under workers comp?

The initial claim was denied by the Vermont Department of Labor because Cyr was intoxicated and intoxication is an "absolute bar" to benefits - even though, we might add, the intoxication did not in any way contribute to the injury.

Now the Vermont Supreme Court has ruled that Cyr may indeed have a compensable claim. They have remanded the case back for consideration as to whether the injury arose out of "the course and scope of employment." The majority wrote:

Here, we find that claimant's injury arose out of his employment when he accepted the bottle containing the caustic chemicals. That act put the mechanism of injury in motion. This is not to suggest that his injury was inevitable once he received the bottle or that no superseding, intervening factor--such as intoxication--could have prevented his injury or altered its mechanism. However, no one suggests he was intoxicated at that time. ...His injury would not have occurred had not his employment created the dangerous condition.

In his dissent, Justice Reiber returns to the language of the statute that precludes compensability for any injury "caused by or during intoxication [emphasis added]" He believes that compromising this absolute language in the statute runs contrary to legislative intent.

Whether he was technically drunk or sober, poor Henri Cyr was the victim of horrifying circumstances when he took a swig from the bottle mislabled "Mountain Dew." He would have been better off if he had resorted to the beverage transported by his employer, wholesome milk.

The lingering mystery in this sad tale is how the toxic chemicals got into the Mountain Dew bottle: who did it and why? Such questions may be beyond the technical issue of compensability, but surely they are the questions most in need of answers.

March 2, 2010

Four years ago (time flies when you're having fun!) we blogged the saga of Thomas Noe, the power broker who parlayed his relationships with highly-place politicos into lucrative contracts with the Ohio workers comp bureau. The state invested $50 million of comp funds in his coin business. Unfortunately, Noe's inventory of coins and his tracking of the funds fell short of bookkeeping standards. He was convicted on both federal and state charges. The "Coingate" scandal brought down some heavy hitters, including the governor.

"God has a plan for me, and what I'm going to do (is) I'm going to make the best of my time in Hocking {Correctional Facility]," he says. Much of his time is tied up in his appeal, which is wending its way to the Illinois Supreme Court, where he subliminally hopes the judges remember him fondly: last time around, five of the seven judges removed themselves from a previous case because they had taken campaign contributions from the ever-generous Noe.

His appeal appears to be based upon a technicality: "Believe me, I'm not sitting here saying I didn't make mistakes. I made a lot of mistakes. I'm just saying I'm not guilty, in my opinion, of what they said I'm guilty of."

To put it mildly, the prosecutors aren't buying Noe's claiming of innocence.

Assistant Lucas County Prosecutor John Weglian says: "He's a liar."

"There isn't a single embezzler in the history of embezzling, I think, who has not intended to pay the money back," Weglian said. "They all say that. ... He's a salesman; he's trying to market himself." (With all due respect, Mr. Weglian, Bernie Madoff knew all along he was never going to pay people back.)

Accentuate the Positive
For the disgraced Noe, the marketing options from a jail cell are clearly limited. But Noe prides himself on being a positive person.

"I've always said a negative thought's a down payment on failure. I'm not going to fail. I'm not going to fail on the outside. I'm not going to fail as a prisoner."

One might argue that Noe's conviction on multiple charges of corruption was a failure on the outside, and that his prospects for success from the "inside" are remote. But as Noe says, it's just part of God's plan - a plan, at the moment, that calls for another decade or so in Hocking. The former high roller used to enjoy steaks and cabernet at the best restaurants in Ohio. His current fare falls rather dramatically short of that standard, but, heck, it's free and there's no tipping.

It would be nice to think that if he ever gets another opportunity to make business decisions on the outside, Noe will have learned how to say "no way" to the Noe Way. I'm not exactly holding my breath.

February 23, 2010

In December we blogged the horrendous case of Carla Nash, a lovely woman who was mauled by a chimpanzee owned by Sandra Herold, a friend. The 200 pound chimp literally ripped her face apart. Nash, who lacks health insurance, has been hospitalized for over a year at the Cleveland Clinic. The attack destroyed her vision and rendered her face unrecognizable (and unviewable). Doctors have determined that she is not ready for a facial transplant. She has sued Herold for $50 million. Her medical bills will easily run to 7 figures; who will pay has yet to be determined.In our prior blog, we noted that Herold was trying to limit the exposure to her workers comp policy.

A little lost in Nash's tragedy is the fate of Frank Chiafari, the Stamford, Connecticut police officer who came to Nash's aid. The raging, blood-covered chimp approached Chiafari's cruiser, tore off the mirror, ripped open the door and tried to attack the policeman. Chiafari shot and killed the chimp.

In the weeks and months following the incident, Chiafari suffered from post-traumatic stress disorder (PTSD); he experienced anxiety, flashbacks, mood swings and nightmares. He underwent counseling. (It's not clear how much time, if any, he was away from work.) Chiafari's workers comp claim was denied: under Connecticut law, public safety officers are eligible for PTSD benefits only when they shoot people - not animals.

Compensating for the Uncompensated
The good news is that Stamford has been covering Chiafari's medical bills, although they did require him to switch to a therapist of the city's choosing. The even better news is that Chiafari has literally been working his way through this work-related nightmare. He is still on the job.

There is movement in the Connecticut legislature to amend the workers comp statute so that public safety officers are covered for PTSD resulting from the use of deadly force involving animals. As is so often the case, the law will be adjusted long after the incident that exposed the gap in coverage. Fortunately for officer Chiafari, the city, despite the comp denial, recognized the legitimacy of his claim and paid for the needed counseling. They did the right thing for an officer who did the right thing. Nothing will erase the horrible images from that fateful day last February. But life for Chiafari can go on in all its ordinary splendor - more than we can say, alas, for the ill-fated Carla Nash.

January 20, 2010

We recently blogged a "to and fro" case involving a meandering motorcycle ride back to work from a conference. The cycle crashed and the employee filed for workers comp. The court in Wyoming determined that the accident took place during a deviation from the direct route home and thus was not compensable. Some readers commented that the employee was following his supervisor's lead, so the injury should have been compensable. "To and fro" often raises issues in the gray zone. Here's another gray area: coffee breaks.

Jesse Cooper, master plumber and foreman, needed to consult with someone at the union hall in Winslow Township, New Jersey. His contact was teaching a class, so Jesse decided to take a coffee break. He preferred the coffee at a deli some five miles down the road. On his way to a good cuppa, he was involved in a serious accident, breaking his arm and both legs.

Personal Comfort or Personal Errand?
Cooper's employer, Bernickel Enterprises, argued that the coffee break was a personal errand. Workers comp judge Bradley Henson determined that a coffee break was part of the working day and that Cooper was under the "coming and going" rule while on his way to a somewhat distant cup of joe*. He found the injuries to be compensable.

Henson describes Winslow Township as a "rural area", so the options for coffee are somewhat limited. In his summary of the case, New Jersey comp guru John Geaney notes that there were other coffee options closer than the deli; the judge, however, "accepted as credible that petitioner knew the deli had good coffee."

This ruling certainly stretches the parameters of the "personal comfort" doctrine to its outer limits. One wonders when that hypothetical line between work and personal might actually be crossed: if I have a sudden craving for a Caramel Brulee Latte (not likely, mind you) and the nearest Starbuck's is 15 miles out of the way, am I still "working" when I head in that direction?

The Driving Hazard
These two cases share one important characteristic: both involve accidents while driving, statistically the most dangerous part of the working day. As risk managers contemplate enhancements to safety programs, they would do well to put safe driving near the top of the list.

* Why do they call it a "cup of Joe"? Check this link for a possible if not entirely plausible answer involving a former Secretary of the Navy.

January 12, 2010

Richard Selest worked for the state of Wyoming Department of Transportation. He was asked to attend a training session 100 miles away from his office. Given the nice June weather, Richard, his supervisor and a co-worker decided to ride their motorcycles. (This surely would not have been an option in January!) On the way back to the home office, they discussed taking a scenic route, but no final decision was made. When they arrived at the intersection for the scenic road, the supervisor, riding in front, turned off. Richard and the co-worker followed. In the course of the ride, Richard lost control of his motorcycle and suffered serious injuries. Compensable under comp?

Richard's claim was initially denied on the theory that the scenic route - 50 miles longer - was a deviation from the road back to the office and thus not compensable. Richard countered that his supervisor approved the deviation and that he was not on any specific "personal errand." He merely was going back to his office, albeit in a meandering fashion.

The case, like the scenic road, wended up to the Wyoming Supreme Court, where Richard once again lost. The court found that the choice of a scenic road was purely personal and a clear deviation from the "course and scope" of employment. Even though Richard had no specific goal in taking the longer road, and even though he was in fact heading back to the office, the deviation in route was substantial, thus taking him outside of comp's protective umbrella.

One justice dissented, but I think the majority acted appropriately. Despite the fact that Richard was paid for the entire trip (which took one hour longer than the direct road) and despite the fact that he followed his supervisor's lead, the deviation had nothing whatsoever to do with work. As all good claims adjusters know, this is a matter of reading a map: the presumptive route to the office is a (relatively) straight line. Richard and his co-workers were seduced by the curvy call of nature, for which poor Richard has had to pay a very steep price.

January 11, 2010

Back in June we blogged the resignation of Zach Weiss from one of the more difficult jobs in America: head of New York's workers comp board. Weiss had been appointed by former governor Elliot Spitzer (whose libidinous indiscretions, we note in passing, were relatively modest, at least when judged by the new standard set by Tiger Woods). After two years mired in New York's deeply adversarial system, Weiss quit to become an administrative law judge.

Governor David Patterson, who stepped in when Spitzer stepped down, has announced the appointment of Jeffrey Fenster as the new director of the board. Today is Fenster's first day on the job. Fenster is a lawyer who once worked for WR Group Holdings, a hedge fund group based in Connecticut. The company website features a picture of the Connecticut shore with a lighthouse in the distance. The sea is absolutely calm - not exactly indicative of the world of hedge funds, or the world of workers comp, for that matter.

If nothing else, Fenster's experience in hedge funds prepares him for the complex risks involved in his new position. He now manages one of the most expensive, frictional, cumbersome, and ineffective comp systems in America. Despite recent reforms, rates are still too high, benefits are too low, fraud is rampant and virtually all stakeholders are miserable. The Empire state is a mess. I have no idea what Governor Patterson promised Fenster for taking the job, but it probably wasn't enough. Fenster is likely to look back on his presumably hectic hedge fund days as the calm before the storm, which is not exactly high praise for his new job. Good luck to him and to all who labor in New York's challenged and challenging comp system.

December 31, 2009

We conclude this bi-polar year with a risk-related story that is both a phenomenal high and a pathetic low. In what appears to be a record-breaking performance - at least for South Dakota - police found Marguerite Engel passed out behind the wheel of a stolen delivery truck. The article does not specify the contents of the vehicle, but if Engel had her Christmas wish, it was full of alcoholic beverages. Her breathalizer test revealed a blood-alcohol level of an astounding .708. That's some serious drinking: a level of .40 is fatal for about half the adult population.

You might think that Engel's dubious achievement qualifies for the Guinness Book of World Records. Not even close. According to Wickipedia, the record belongs to an unnamed Pole: in March 2009, a 45-year-old man was admitted to the hospital in Skierniewice, Poland after being struck by a car. The blood test shows blood alcohol content at 1.23%. The man survived. He did not remember either the accident or people he drank with. With that much alcohol in his system, it's a wonder that his brain can retain anything.

As we say farewell to the decade that gave us x-rays of shoes, Octomom and the I-Phone, we ring in the new year with a toast: "May the gifts of moderation be yours in abundance. Salud!"

December 22, 2009

You probably never heard of Gilby, North Dakota, population 226. Edith Johnson, 56, worked as a teller in the town's bank, which, somewhat surprisingly, has been robbed three times. Edith was in the bank during two of the robberies. The last one was especially traumatic: she was handcuffed and placed face down on the floor with a sawed off shotgun pressed against her head. After this incident, she became too afraid to return to her job. Diagnosed with post-traumatic stress syndrome, she filed for workers comp. The claim was denied. North Dakota, like many other states, will pay a "mental" claim only if it is precipitated by a physical injury.

Edith has an attorney and is appealing the denial of her claim. Given the way the law is written, she is unlikely to prevail.

The irony, of course, is that with just a bit of coaching at the time of the incident, it would have been easy for Edith to collect comp. All she would have had to do is complain about a pain in her wrist and shoulder, caused by the handcuffs and the awkward position on the floor. Even without objective medical evidence, these physical complaints would have opened the door to her claim of post-traumatic stress.

Coming from a small town and working as a bank teller, Edith is undoubtedly the soul of rectitude. She is not about to tell a lie. Unfortunately, she is up against the letter of the law, which, in North Dakota, is very clear. Workers Safety and Insurance director Bryan Klipfel explains the denial: "A post-traumatic stress disorder that is directly related to a physical workplace injury may be compensable if it can be shown that it was primarily caused by the physical work injury, as opposed to all other contributing causes."

Letter and Spirit
Edith's dilemma reminds me of the scene in the immortal Marx Brothers movie, "A Night at the Opera." Groucho (Otis. B. Driftwood) and Chico (Fiorello) are discussing the proposed language of a contract. Every time Chico objects, Groucho tears the page from the contract.

Fiorello: Hey, wait, wait. What does this say here, this thing here?

Driftwood: Oh, that? Oh, that's the usual clause that's in every contract. That just says, uh, it says, uh, if any of the parties participating in this contract are shown not to be in their right mind, the entire agreement is automatically nullified.

Fiorello: Well, I don't know...

Driftwood: It's all right. That's, that's in every contract. That's, that's what they call a sanity clause.

With that impeccable logic, the Insider wishes the beleagured Edith and the citizens of Gilby all the best and we bid our readers a splendid holiday. Every week we try to invoke the "sanity clause" in risk management and workers comp. It's not always easy. We sincerely hope that Santa - whether or not he exists - rewards you for all the good that you have done this year.

December 21, 2009

It's hard to think of anyone bullying Bath Iron Works, the General Dynamics subsidiary that builds destroyers for the U.S. Navy. But they are being kicked around like the proverbial 90 pound weakling by the workers comp system in Maine. Two years ago we blogged the inability of Mainers to come up with a viable fee schedule for workers comp medical costs. The legislation authorizing the fee schedule became law in 1992. Now we approach 2010 - nearly 20 years! - and there's still no fee schedule.

Workers comp insurers are free to negotiate rates for medical services. In effect, they develop their own de facto fee schedules. Bath Iron Works (BIW) is self-insured for comp. They do not have the leverage to negotiate fees. So when a local hospital sent a bill for $107,000 for treatment of two injured workers, BIW filed a lawsuit. They lost: they had to pay the hospital's "usual and customary" fees - an ironic appelation if there ever was one. The only suckers stuck with paying the full boat (so to speak) are self-insureds and uninsureds.

So how is the fee schedule coming along? And why the inordinate delays?

The rule-making group charged with developing the fee schedule is trying to come up with something acceptable to the medical providers. That's like asking an employee how much of a pay reduction they would like. How about nothing? In the current draft, total billings of $80 million would fall by about $1 million. In other words, a drop of less than 1 percent. That's a fee schedule only a medical provider could love!

The Massachusetts Model
Maine officials are worried that low fees would drive doctors away. Paul Dionne, executive director of the Maine Workers' Compensation Board, says he heard from a group of orthopedic doctors who said if the board made the new base fee too low, "they weren't going to treat injured workers. They're private, they can do that."

That's not what happens in Massachusetts, which has the lowest fee schedule in the nation. Everyone recognizes that the fee is too low. So insurance carriers and TPAs routinely negotiate a reasonable fee with doctors on an individual basis. For example, the scheduled fee for hand surgery is only $725. The "usual and customary" fee of a skilled surgeon might be $5,000. The insurer and doctor would settle somewhere in the middle, perhaps $3,000 for the service. It sounds frictional and inefficient and to some degree it is, but overall, medical costs remain unusually low in Massachusetts, doctors continue to provide services and injured employees are satisfied with the results. The system is working despite what appear to be severely deflated medical rates.

One unusual and perhaps unintended benefit of the low fee schedule is the leverage it provides against medical providers who refuse to treat with a return-to-work focus. If "Dr. Feelgood" insists on keeping a marginally injured employee out of work, the adjuster can dig in and offer to pay only the deflated fee schedule rates. That will get the doctor's attention immediately.

Maine used to be part of Massachusetts. If they want to solve this particular problem, they might consider re-joining the Commonwealth, or at least copying Massachusett's highly successful comp model. Step one involves some tough negotiations - with or without the doctors in the room. Thus far, by trying to please everyone, Maine is punishing some of their most valued employers. Nearly twenty years into a failed process, it's time to face reality: a fee schedule is a cut in pay. If the doctors are happy, it's not an effective fee schedule.

Meanwhile, it looks like a bleak Christmas for the mighty folks at Bath Iron Works. There are undoubtedly a lot of nice goodies under their tree, but a fee schedule is not among them.

December 14, 2009

Back in June we blogged the failure of several self-insurance groups (SIGs) in New York, all run by Compensation Risk Managers (CRM). There was bad news all around: participants in CRM SIGs were suddenly without coverage; and participants in other (non-CRM) SIGs were hit with a huge surcharge to make up the deficits created by CRM's deficient management. Now the proverbial "other shoe" (presumably a Gucci) has dropped, directly on the heads of CRM managers: the company has been indicted by Attorney General Andrew Cuomo for fraud and sued by the state comp board. CRM is having what appears to be a well deserved, terrible, horrible, no good, very bad week.

According to the WCB's website, of the 65 self insurance workers compensation trusts authorized by the WCB and subject to its oversight and regulation, as of November 2009, 32 were either insolvent, being terminated or were underfunded, 13 had been voluntarily terminated and only 20 were operating with no fiscal issues and no regulatory restriction. Compensation Risk Managers managed 8 of these 65 trusts. The Company believes that an industry-wide problem exists and that the WCB has unfairly singled the Company out. The Company intends to defend the WCB litigation vigorously and prove that the WCB's unsubstantiated allegations are utterly without merit.

In other words: don't hold us accountable for something everyone is doing.

Well, maybe other SIGs are in bad shape, but CRM is under fire for operating the insurance equivalent of a Ponzi scheme: the indictment charges that they deliberately under-reserved claims, leading to under-stated losses. The resulting "healthy" loss ratios became the basis for under-pricing the rest of the market, which led to increased membership in their self-insurance groups. The new premiums helped CRM keep up with increasing payments. It all came crashing down when insufficient reserves ran out and payments exceeded available cash. Heck, the experts at Madoff Consulting guaranteed that it would work... right up until the moment it didn't.

Joint and Several Liability
Most people buy insurance with stand-alone policies. Each company is the master of its own fate. If the company performs well, they benefit from lower premiums. If losses are high, the experience rating process leads to higher premiums. As long as the carrier remains solvent (not a given these days), there are no big problems.

Self-insurance groups are different. They involve a much higher level of trust (and risk): not only are you accountable for your own losses; you are on the hook for the losses of other group members. A SIG is only as strong as its weakest member. Indeed, SIG participants in New York discovered that they were on the hook for losses in other SIGs, through a painful surcharge imposed by the comp board.

This brings to mind the response of the immortal Groucho Marx to an invitation to join an exclusive club: "I don't want to belong to any club that will accept me as a member." That's just the kind of thinking that might have helped the unfortunate companies who find themselves swinging in the wind at the end of CRM's tattered rope.

November 24, 2009

The state of Ohio has attained considerable notoriety for its workers comp program. Unfortunately, the fame derives from a scandal, dubbed Coingate, in which high level officials were implicated in the diversion and theft of comp funds. There are a number of political operatives spending this Thanksgiving in jail. Now we read of a state senator who has proposed legislation to explicitly exclude undocumented workers from the Ohio comp system. It appears that one bad turn in Ohio deserves another.

We all recognize the ambiguous state of undocumented workers in the American workforce. But virtually all states - with the exception of sparsely populated Wyoming - have provided comp coverage to illegal workers once they are injured. It's a matter of common sense and fundamental decency: we may question how these workers came here, but once hired and in the workforce, they must be afforded the same protections given to other workers. Otherwise, we create a second-class workforce subject to exploitation and substandard working conditions - not exactly the American way.

Turkey of a Bill
Enter one Bill Seitz, a state senator who graduated summa cum laude from the University of Cincinnati and from the University of Cincinnati School of Law, where he was Law Review and Order of the Coif. I have no idea what "Order of the Coif" is, but you can see Bill having a reasonably good hair day here.

Seitz says he was shocked to learn that the Ohio Bureau of Workers Comp does not require injured workers to document their status before receiving benefits. (Why is he shocked? No state has any such requirement.)

According the AP:

Seitz's bill would place the burden of proof on the injured worker to demonstrate he or she is a legal worker by showing documentation such as a birth certificate or a visa. It would establish immunity from civil lawsuits for businesses in cases in which their workers' claims are denied by the bureau because the worker is illegal, except in cases in which the business knew the worker was illegal or if it intentionally hurt the worker.

I particulary like the immunity from civil suits. This bill would not just eliminate the "exclusive remedy" of comp - it would strip away any remedy for injured, undocumented workers. It's an invitation to employers to actively recruit illegal workers: they won't be held responsible for hiring them, they won't have any responsibility for workplace injuries that occur and they can avoid other forms of liability, provided, of course, that they did not "intentionally hurt" the worker. Seitz has stacked the deck against an already vulnerable population.

David Leopold, a Cleveland attorney and president-elect of the American Immigration Lawyers Association, thinks Seitz is engaged in a publicity stunt. "It seems to me to be a waste of time to even be talking about this. Beyond being cruel, it's senseless because it's not going to address the problem. If he has no statistics to back this up, he hasn't shown a problem exists."

Thanksgiving
As all of us gather for this most generous of our holidays, let's give thanks for our many blessings. Let's say a prayer for all of the families - native born, immigrant, legal and undocumented - struggling to make ends meet in this most difficult of times. And let's hope that the good people of Ohio focus on fixing the real problems in their comp system, not the imaginary ones that trouble the waking hours of the well-dressed, well-coifed Mr. Seitz.

November 23, 2009

My blog post of last Thursday (19 November 2009) addressing why workers' compensation costs in Massachusetts are the lowest in the nation, while benefits are among the highest drew a mild pushback from Mark Walls, who manages the excellent LinkedIn Workers' Compensation Forum. Mark wrote:

"Working for an excess carrier, I would never have expected Massachusetts to be considered a "low cost" state. In Massachusetts you cannot settle medical, and there are COLA's on the lifetime benefits. In my world, it's a high cost state.

I guess it's all about your perspective."

And he's right- it is all about perspective. Mark also wrote, "I'm a claims guy," and the blog post in question was all about premium rates. Sometimes, what appears logical when looking at claims can appear illogical when viewed through the prism of premium rates.

I can certainly understand why claims professionals in Massachusetts might be a bit frustrated, because not being able to settle the medical portion of a claim, along with having to contend with annual Cost of Living Adjustments, tends to obliterate predictability.

The perspective Mark mentions changes, however, when one considers a workers' compensation program unique to the Massachusetts voluntary market, a program that substantially increases premium collected in the state while not driving up premium rates: the All Risk Adjustment Program, or, as it's better known, the ARAP Surcharge.

In all 38 NCCI states, the ARAP, a sort of second experience modification that penalizes severity more than frequency, exists as the Assigned Risk Adjustment Program and is found in the Residual, but not in the Voluntary, market. This is supposed to provide even more of an incentive for employers in the Pool to do the right things to get themselves into the voluntary market. It's a debit mod only. In Massachusetts, however, the ARAP can be found in both the Residual and Voluntary markets. If an employer in the Voluntary market has a high experience modification, it will also most likely find itself with an ARAP surcharge, anywhere from 1% to 25%, which is applied to the standard modified premium.

For example, say a company in the Voluntary market has a manual premium of $100,000, an experience modification of 1.5 and an ARAP of 1.2. The resultant total premium will be $180,000. Think of the $30,000 ARAP charge as compound interest. This means that Massachusetts premiums are more sensitive to losses than premiums in other states, even "loss cost" states.

And why shouldn't an employer with high claim severity pay more for workers' compensation? Why should employers with low claim severity subsidize those with high claim severity? Although many in industry abhor the idea of the Voluntary market ARAP, it seems to me that Massachusetts is doing the fair and reasonable thing.

In 2007, ARAP surcharges in Massachusetts brought in additional premium of $60 million, or about 7% of total premium in the state. However, this should decline fairly significantly in 2008 and going forward for two reasons:

• First, until 2008, the maximum ARAP surcharge was 49%; in 2008, the maximum was lowered to 25%;
• Second, Massachusetts has been hard hit by the recession, causing payrolls to decrease substantially; lower payrolls result in lower premiums.

The Massachusetts Workers' Compensation Rating and Inspection Bureau is now engaged in the monumental task of putting together a rate filing to be submitted in 2010. It will be interesting, indeed, to see to what extent lowering the maximum ARAP surcharge from 49% to 25% impacts the filing.

November 19, 2009

Recently, in one of his Risk & Insurance columns, our friend and colleague, Peter Rousmaniere, wrote a piece examining workers' compensation costs and benefits among the various states. There are a few organizations that do this annually. In my opinion, the most scholarly work is done by The National Academy of Social Insurance. However, the Academy, created in 1997 after the Social Security Administration stopped producing annual comprehensive national data and estimates on workers' compensation benefits and costs, doesn't really rank states in terms of either costs or benefits; it just lays out a mountain of interesting data .

The most incisive ranking of state benefits and costs is done by three organizations: the Oregon Department of Business & Consumer Services, the actuarial consulting firm, Actuarial & Technical Solutions (ATS) and the National Foundation for Unemployment Compensation and Workers' Compensation (UWC) headquartered in Washington, DC, which has, since 1984 published annual, and class specific, comparative state data. (We've blogged reports from these organizations whenever they've been published. Go here and here.

Rousmaniere used reports from Oregon and ATS to construct a sort of consensus ranking of the 50 states. In his ranking, Massachusetts emerged with the lowest costs and the highest benefits. How can that be? It sounds paradoxical. To answer the question, I thought it might be useful to peel the Massachusetts onion a bit, because Massachusetts is the Insider's home state, and we at Lynch Ryan played an active role in the turnaround.

Why does Massachusetts have low costs?
Throughout the mid-1990s, Massachusetts had some of the highest costs in the nation - annually about $2 billion in premium, compared to $878 million today.
Reform happened in 1992 (after a failure of reform in 1986). Here are some important reform initiatives:
• Indemnity wage replacement was lowered from 66 2/3% of an injured worker's average weekly wage to 60%. This provides incentive for injured workers to stay out of work no longer than is medically necessary. (A case can certainly be made that this somewhat gratuitous cut in benefits is unfair to injured workers.)

• The state introduced the lowest medical fee schedule in the nation (there is no pharmaceutical fee schedule).

Currently, the fee schedule for physicians is about 100% of Medicare rates, but that just became effective in April, 2009. Prior to that, the rate was about 95% of the Medicare rates of 2004. Hospital rates are even lower. The result is that the medical portion of loss costs in Massachusetts now hovers around 40%, significantly lower than the rest of the nation.

However, physician specialists no longer accept fee schedule rates (as my colleague and fellow blogger, Jon Coppelman, puts it, "Any hand surgeon that accepts the fee schedule of $725 will be doing hand surgery in the back seat of a Buick.") So, insurers must now negotiate fees with specialists (or with the consulting negotiators representing them - I'm not making this up!). The back and forth negotiating can delay care, frustrate employers and anger injured workers. Over time, we believe that the medical share of loss costs will rise in Massachusetts. It is interesting to note that, despite the low fee schedule, injured workers report satisfaction with their medical treatment.

• In the early 1990s, premium in the Assigned Risk Pool, the Residual Market, was $1.2 billion; today, it's $117 million, or 11.7% of the entire insured market. A number of initiatives contributed to this decline. Lynch Ryan offered a program recommendation that became one of the most influential: the QLMP, or the Massachusetts Qualified Loss Management Program (We might have designed the program, but we sure didn't pick the name!)

This program allowed employers in the state's Assigned Risk Pool to receive intense and in-depth training and education in managing their workers' compensation and injured employees from consulting firms that "qualified" to provide it. Firms became "qualified" by having their entire Massachusetts book of business analyzed by the Massachusetts Workers' Compensation Rating & Inspection Bureau. The Bureau designed a special one-year experience modification for each consulting firm's total book of business, comparing the Mod in the year prior to the consulting firm working with a client to the Mod in the year following the work. Consulting firms were then awarded a credit, graduated from zero to fifteen percent, depending on the decline in the Mod of their books of business in the year following the work. This credit was passed on to any company in the Pool that hired the consultant, and the consultant's fee would come out of the passed-on credit. This program gave Pool employers a way out, and was later replicated in Missouri and West Virginia.

We think it an elegant program, because each consulting firm had to re-qualify every year. Under Paul Meagher's steady leadership, The Rating Bureau has done an excellent job managing this program, which continues to this day.

• The state lowered attorney fees: a prudent and necessary move to reduce frictional costs (but the howls of protest still echo in the legislative chambers). They also hired and trained more judges, making the entire system more efficient.

Why does Massachusetts have high benefits?
Central to the reform effort was pegging the maximum temporary total disability (TTD) benefit to the average industrial weekly wage in the state. The maximum benefit is currently $1,094 per week. However, only if an injured worker's pre-injury weekly wage is $1,823 or more will he or she receive this generous maximum. Thus, while indemnity only covers 60 percent of the average weekly wage, the maximum of $1,094 is substantially higher than what is available in most states.

There were many other reforms, but, to my mind, these have been the most influential. After twenty years, it is clear that the Massachusetts workers comp reforms were well crafted. The legislators, regulators, insurance executives, union representatives and employers who spent long days and nights dissecting the workers' compensation crises of the early 1990s built a system that has stood the test of time. As I tell clients, "There may be reasons for not doing business in Massachusetts, but workers' compensation isn't one of them."

October 5, 2009

Fernando Martinez worked for the D. H. Smith Company, as did his two sons. The company provided Martinez and his sons a Ford F350 flatbed to drive to and from work. Because Martinez did not have a driver's license, only the sons were to operate the vehicle. In June 2007, Martinez and his sons were on their way to a construction site, with the elder Martinez behind the wheel. Martinez rear-ended another vehicle on the freeway, injuring himself and his son. At first, Fernando and his son lied to the investigating officer from the Califomia Highway Patrol about who was driving the company truck. However, marks on their bodies from their seatbelts showed that Fernando was driving and his son was a passenger at the time of the collision. They eventually fessed up to the fact that Fernando was driving.

Both filed workers comp claims. There is no doubt that the son's injuries are compensable. But what about Fernando?

At first, Fernando's claim was denied. Here is an excerpt from the initial ruling:

After consideration of all of the evidence, testimony at trial and in deposition, and the demeanor of witnesses, it was found that applicant's conduct in driving the company truck to work without a driver's license, against the express orders of the employer, was a cause of the injury, and takes the activity in which the injury occurred outside the course of employment. The conduct of driving the company truck on public highways against the express order of the company was more than the manner of performing duties. It was different duties than he was employed for. It appears that applicant did drive the truck before his sons were licensed, contrary to the testimony of defendants. However, on the evidence it is clear that he was not allowed to drive after they were licensed, and he and his sons were well aware of that...Applicant's conduct in this case posed an increased hazard to his own safety and life, to that of his son and members of the public, and greatly increased the risk of liability to the employer for damage to property and injury.

Sounds reasonable, but remember, this is California. The review board overturned this decision. They found the injuries to Fernando were compensable, as he was in the course and scope of employment and furthering the interests of the employer, even though he was disregarding the employer's instructions pertaining to his driving.

Golden State Precedents
The review board cited some fascinating cases to support their contention that the injuries were compensable:

Benefits not barred for injury incurred following a high-speed chase through heavy traffic after employee had run a red light [Williams v. Workmen's Comp. Appeals Bd. (1974)];

Bus driver who sustained injury as a result of nearly hitting an oncoming vehicle while recklessly driving his bus not barred from recovering workers' compensation benefits for the injury [Westbrooks v. Workers' Comp. Appeals Bd. (1988)]

With precedents like these, it would be hard to come up with a case where employee misconduct resulting in an injury was not compensable. In California at least, virtually anything you do at work is compensable.

The review board goes on to say:

In this case, it does not matter that applicant may not have been authorized by defendant to drive the truck because his travel to the job site in the truck was authorized by the employer and was of benefit to the employer.

A distinction must be made between an unauthorized departure from the course of employment and the performance of a duty in an unauthorized manner. Injury occurring during the course of the former conduct is not compensable. The latter conduct ... does not take the employee outside the course of his employment.

It is apparently not a concern to the review board that the "unauthorized manner" in this particular case involves an illegal activity (driving without a license).

The End of "To and Fro"?
Finally, California has interpreted the "coming and going" rule in the most generous manner. In most states, commuting "to and fro" is generally not compensable, even when the employee is operating a company vehicle. The workday usually begins at the worksite. Not in California: "When the employer provides the means of transportation, the course of employment begins when the employee begins to travel."
NOTE to CA employers: you may want to bag it on the company cars.

Workers comp costs in California are the highest in the country, despite the fact that employee benefits are relatively stingy. The high costs derive from many factors, one of which is revealed in this particular case. There are embedded in case law deeply rooted concepts that tilt the interpretation of compensability in the direction of injured employees. In many states, defense could certainly raise the issue of whether Fernando's insistence on driving the truck without a license crossed the line into "serious and wilful misconduct." You know, the concept of personal responsibility. That might be a reasonable argument in some states, but it doesn't hold any water in California.

September 14, 2009

The Insider just returned from a speaking engagement in Stillwater, Oklahoma. The occasion was the annual workers comp conference sponsored by the judiciary that manages comp in the state. I was invited by fellow blogger Judge Tom Leonard, whose blog provides valuable information to comp practitioners in the state.

As a relatively high-cost state, Oklahoma is experiencing rumblings in the state legislature to switch to an administrative - as opposed to judicial - system. In theory, this makes sense, as a formal judiciary with its due process rules can slow down the resolution of claims. But this is no simple problem, with no simple solutions. The first event at the conference featured a panel of legislators who were involved in crafting the systemic fix: in general, republicans were pushing for change, while democrats cautioned that the interests of injured workers may be compromised.

While the Insider does not take a formal position on the controversy, we did caution all parties to "beware the law of unintended consequences." Every "fix" contains the seeds of both success and failure. The prudent legislator would do well to examine the problem from all sides and fashion a dispassionate solution - much as the talented and compassionate judges currently operating the Oklahoma system approach every claim.

Six Humongous Problems
The insider was invited to provide a national perspective on workers comp to the conference's 400 participants. We focused on six looming crises facing comp across America. Here is a brief summary of our concerns:

1. The Original workers comp model is obsolete: Comp is nearing its 100th anniversary (New York 1911). The workplace at the beginning of the 20th century was very different from what confronts us today. Legislatures struggle to modify the initial legislation to keep pace with change.

2. The economic collapse is a game changer: The comfortable assumptions of financial planners (stocks rise inexorably over time) have disintegrated in the world-wide collapse that began just over a year ago. This collapse has implications for workers comp, with employment shakier than ever and the retirement plans of millions in tatters. Which leads to:

3. The Aging American workforce is going to get older: With baby boomers approaching retirement age, the workforce is already at its oldest. As retirement accounts sink with the economy, more and more workers are finding themselves in a bind. They do not have enough money to retire. These older workers bring skill and experience to the workplace, but their aging bodies are breaking down. The comp system is not built to handle workers in their late 60s and 70s who plan to keep on working. Will comp become the retirement plan of choice for workers with no other choices?

4. Undocumented workers are half in and half out: most states cover the medical costs and indemnity for injured, undocumented workers, but draw the line at vocational rehabilitation. By definition, these folks are not "available for work." Will Congress create some form of amnesty, thereby opening the door to complete workers comp coverage for foreign workers?

5. Insurers are in big trouble: There may be low hanging fruit in the insurance world, but not in workers comp. There is a nation-wide suppression of rates, which is compounded, of course, by the idiocy of carriers who drop steep discounts on top of inadequate rates. Carriers may dream of a hardening market, but it never seems to arrive. Meanwhile, the bottom line continues to erode.

6. The federal government might mess everything up: The Medicare Secondary Payer program has invaded the settlement process for comp claims, creating chaos and uncertainty and increasing the costs. [Check out Judge Leonard's blog for some excellent materials on the Secondary Payer program.] Now we have national health insurance on the immediate horizon. No, it's not "death panels" or alleged coverage for undocumented workers that concern us. It's the more basic issue of who will choose doctors, under what circumstances, and what impact this might have on workers comp.

We have covered all of these crises in the Insider and will continue to do so in the coming months. I'm not sure that the good folks in Oklahoma found much solace in the fact that their own little comp crisis is dwarfed by issues that transcend state lines. Meanwhile, I did learn a thing or two about Oklahoma. It all comes down to this: Sooners versus Cowboys. No, I'm not going to explain. You have to be there to really understand.

September 2, 2009

State governments are scrambling for cash and looking, it appears, in all the wrong places. Back in April we blogged the abortive attempt by the state of Colorado to use the claim reserves from its state-run workers comp fund to plug the deficit hole: a bad idea that died a quick death in the thin mountain air.

Now California has its eye on a similar prize. They want to sell one billion worth of the best policies from the State Insurance Fund (SCIF) and use the proceeds to plug a bit of the $24B budget deficit. While nowhere near as daft as the Colorado plan, this one has its flaws, too.

Insurance Commissioner Steve Poizner is seeking a court injunction to prevent any sale of SCIF policies. Poizner, like Arnold Schwarzenegger, is a republican. Indeed, he covets the office that Arnold now holds, having set up a committee for a run in 2010. (Under California law, Arnold cannot seek another term.)

Poizner believes that the sell off would violate the state's constitution as well as lead directly to higher workers comp rates for employers. With its 7,000 (!) employees, SCIF is the largest carrier for comp in the state. They insure roughly 200,000 employers (the total number of policy holders in many states).

While it's not clear what effect the sell off would have on non-SCIF policy holders, it surely would mean trouble for the many companies insured by SCIF. You don't peel off your best risks without impacting overall results. It's safe to assume that the best risks in SCIF balance out the losses among the higher risk companies. The immediate effect of the sell off would be a serious erosion in SCIF's loss ratio, inevitably leading to higher premiums.

California employers have experienced a painful rollercoaster ride in the price they pay for workers comp: their worst-in-the-country rates have moderated dramatically over the past few years, but once again are trending up. As pressing as the budgetary needs in Sacramento are, this one shot solution will only result in big problems down the road. This is one idea from the Terminator that deserves to be terminated.

September 1, 2009

As a follow up to Julie Ferguson's gruesome imagery from Monday's blog, we find Clyde Haberman's entertaining piece in the New York Times about the state's new statute outlawing texting. As of November 1, it will be illegal for anyone to drive and text in the Empire State. Haberman goes on to write:

If any law may be described as a no-brainer, this one is it. You have to be certifiable to think that you can stare at a small screen and thumb-type on a tiny keyboard for five or six seconds while going 65 miles an hour, and not be a potential threat to everyone in your path. In the opinion of many safety experts, self-deluding multitaskers have had their way long enough. It's time for some multi-tsking to rein them in.

Bravo, Clyde! But Haberman goes on to say that the new law is pretty toothless. "It doesn't throw the book at texters so much as it tosses a few pages in their direction." (Shades of Keith Olbermann?)

The problem is in enforcement. The new statute will only receive "secondary" enforcement, which means that a fine may be imposed only if the police find some other violation, such as speeding or running a red light. Beyond that, the maximum penalty is only $150. That's chump change for the high rolling multi-taskers who clog New York's multitudinous arteries.

Live Free and Die?
Haberman interviews Judith Lee Stone, president of Advocates for Highway and Auto Safety, a Washington lobbying group. She says "secondary enforcement is not OK, and there's no reason for it."

The good folks in New York like to creep up on enforcement. When they first initiated a seat belt law, they began with secondary enforcement and eventually moved to primary status. All states now require seatbelts, with the notable exception of New Hampshire, which exempts adults over 18 from the mandate.

"It must be that "Live Free or Die" spirit," Haberman quips.

To which Stone responds, "Live free and die, I'd say."

The low budget ($20,000) video was produced by the Chief Constable of the tiny town of Gwent in SE Wales UK. The video has become a You-Tube sensation. The Insider humbly suggests that New York legislators check it out and then revisit the enforcement section of the new law. No one wants to suffer injury or even death just because some twit can't wait to for the proper time to communicate something that, in the scheme of things, most certainly can wait.

August 24, 2009

Wyoming might be a good place to work, but it's also a good place to die at work. The mortality rate for occupational injuries is three times the national average, with 15.6 fatalities per 100,000 workers. Many of these fatalities occur in the oil fields, where "roughnecks" make pretty good wages in exchange for working in relatively dangerous conditions. As DeeDee Correll writes in the Los Angeles Times, everyone shares the goal of improving safety on the far-flung job sites, but there is a continental divide in how to achieve that goal.

Most oil workers are employed by independent contractors, who provide the bodies for the intense work in the fields. The fields are owned by big corporations. On one side of the fence you find workers and their advocates, who want to be able to hold the big corporations liable for what happens on the job. They want to be able to sue the big corporations when they suffer catastrophic injuries or deaths on the job.

The counter argument says that workers comp - carried by the employers of these field workers - should be the exclusive remedy for work-related injuries.

At issue here is the question of accountability and control: under current Wyoming case law, injured workers have to prove that the operator maintained "pervasive" control over the site. This is a very high standard, because the daily operations at these sites are primarily under the control of the independent contractors. By lowering the standard of control, worker advocates would make it easier for workers to sue the oil companies for damages.

Denim Versus Suits
The battleground for this dispute is the Wyoming legislature. As is so often the case, there is considerable theatricality on display. Many of the roughnecks lobbying for a change in the law show the scars of their chosen occupation. They are dressed in denim and baseball caps. Their opposition, lawyers for the oil companies, wear the indispensable dark suits.

The "suits" counter the compelling visual evidence of the roughnecks with some dubious arguments, maintaining, for example, that any change in the law would expose home owners to liability for injuries to contractors working on their houses. That's a red herring, as homeowners rarely exercise significant control over the work environment of their contractors.

There should be enough middle ground in this dispute to fashion a meaningful compromise. Wide-open litigation is rarely the best way to go. The legislature should set specific standards for safe operating procedures in the oil fields. Oil companies should be held accountable for meeting these standards. Only if they are demonstrably negligent in maintaining and documenting these standards should the door be opened to law suits. At the same time, the state should bolster the benefits available to workers who are killed or severely injured on the job.

The "exclusive remedy" provision of workers comp is a standard well worth preserving. It's tempting to carve out exceptions, but each exception becomes a fault line in the fundamental compromise that is workers comp. We are nearing the 100th anniversary of comp in America (New York 1911). For the most part, it is a remarkably successful experiment in public policy. The law makers of Wyoming would do well to keep this success in mind: by all means tinker with the statute to make it more responsive to 21st century working conditions, but don't mess with the premise. This is not the time to find fault with "no fault."

August 19, 2009

California has a California-sized fraud problem, with much of action in the medical arena. Unscrupulous providers are billing for services that are never provided, often under the names of people who have never been injured. It's identity theft targeted at businesses, not individuals. In California's $7 billion comp system (down from $21 billion just a few years ago), fraud is a significant cost driver.

Here is just one example of medical billing fraud, involving the Los Angeles Unified School District. In August of 2006 the district received a bill for lab services involving a principal injured in a fall the previous May. Unfortunately for the perpetrator, one James Wilson, the principal had died prior to the date of the lab test. (Comp is rarely interested in post-mortems.) Wilson was a financial rep at Cedars-Sinai Medical center - a highly reputable institution - and had access to patient medical records. He was convicted on five felony counts and sentenced to 4+ years in prison.

As we read in the LA Times, a task force of private and public employers, including the Walt Disney Co., came up with an intriguing solution: require insurers to send notices to injured workers to check whether they actually received all the medical services billed. To eliminate the suspense, I will tell you now that the bill died in committee, at the request of the insurance industry. As much as the Insider detests fraud, we're with the carriers on this one.

Junk Mail?
The fraud problem is very real, but this particular solution is flawed. Too many assumptions are embedded in the approach. The bill assumes that:
- the carrier has a valid address for the individual
- the individual will read and understand the mailing, which is likely to contain technical information on treatments provided. (The claimant may be non-English speaking and/or illiterate.)
- the individual will take the time to fill out the form and respond, even though there is no direct incentive to do so
- the individual is not a willing participant in the fraud (having received a few bucks for the effort)

The fundamental flaw is that injured workers have no direct financial stake in fraud: they are held harmless in the comp system, with no co-pays, no deductibles and no premiums. The stake holders are the employer, who either pays for insurance or is self-insured, and the carrier/TPA, who under this bill is confronted with the significant cost of mailings (perhaps multiple mailings to individual claimants) and the arduous task of logging responses, which would be random: most would indicate no problems, while those pointing to fraud might well come from folks who simply did not understand the questions. This solution is equivalent to using a shotgun to eliminate a bunch of (very pesky and rather deadly) mosquitoes.

There may be a quick fix to make this approach somewhat more effective: send the confirmation of services to the employer. That way a vested stake-holder would be given useful information and would have an incentive to follow up on it. The employer could sit down with the individual and verify the treatments. Any problems could be relayed to the carrier. In this approach, the scale of the effort becomes more manageable, as the burden falls on hundreds of thousands of employers, as opposed to a few hundred carrier/TPAs.

A cost-benefit analysis would probably place this fraud buster where it currently resides, in the circular file. It's always tempting to legislate solutions to intractable problems, but alas, mandated solutions often become a new set of problems. Administrators, employers and carriers need a variety of tools to tackle fraud. This aborted bill is not exactly what the prudent doctor would have ordered.

August 12, 2009

The King Arthur Lounge in Chelsea, MA does not exactly bring to mind the Knights of the Round Table. It's a tough place in a tough town - a strip joint with a motel attached (don't ask, don't tell). The strippers had to work under some pretty difficult conditions. They were hired as independent contractors. They paid a $35 fee for every shift. There were no wages, just customer tips. They provided their own (easily removable) costumes. When they moved to the darker regions of the bar and provided "private shows" (please don't ask, don't tell!), they had to turn over one third of their earnings to management.

Jonathan Saltzman tells the story in the Boston Globe: About 70 strippers, led by Lucienne Chaves, a 32 year old former stripper, filed suit, alleging in a class action that they were not independent contractors, but employees entitled to minimum wages and benefits. Their lawyer, Shannon Liss-Riordan, compared the strippers to indentured servants: "They weren't making any wage. Imagine a restaurant where a waiter has to pay to come to work and hand over a portion of the tips."

Robert Berluti, King Arthur's lawyer, countered that some strippers made hundreds of dollars a shift. He argued that the strippers were truly independent contractors, picking their own music, costumes, partners and routines.

Judge Frances McIntyre did not buy management's argument. "A court would need to be blind to human instinct [indeed!] to decide that live nude entertainment was the equivalent to the wallpaper of routinely-televised matches, games...and sports talk in such a place. The dancing is an integral part of King Arthur's business." She went on to say that the club hired and fired strippers, determined their hours and made hiring decisions solely on looks. In other words, the strippers were employees.

Mr. Berluti lamented the burden of overcoming Massachusett's strict standards for independent contractors. "This was a case where the judge was saddled with a MA law that makes it an outlier with respect to the rest of the country." Does Berluti really think the outcome would have been different if the law had been more ambiguous?

Debt Collection
The strippers have been awarded thousands of dollars in damages. It will be interesting to see if they can collect. As noted above, King Arthur's Lounge is a tough place. Back in 1982, there was an argument between Alfred Mattuchio and an off-duty Everett MA police officer named John McLeod. The cop left the lounge and returned with several fellow officers, armed with nightsticks, baseball bats and tire irons. They attacked a dozen patrons and employees, one of whom was beaten to death. Four cops were indicted and three were convicted. The Insider wonders which, if any, of the King Arthur employees injured in the fracas collected workers comp.

The chivalry of the original Round Table still lives in some places, but not, alas, in the dank recesses of King Arthur's Lounge.

August 3, 2009

There is an ongoing debate concerning the compensability of injuries that occur during company sponsored recreation. As Dr. Suess might say, "These things are fun and fun is good," except when your employer makes you do it. There is a fine line between employees participating because they want to, as opposed to feeling that they have to.

Clark Kauffman has a nice summary of the compensability issues in the Des Moines Register. He sites the case of Robert Powell, an employee of the Cedar Rapids Gazette, who injured his back bowling at a "Family Fun Fest" sponsored by his employer. His injury was compensable - to the tune of $100,000 - because the employer urged participation: "Don't make us cancel this event from lack of interest/attendance."

Iowa has some interesting case law regarding compensability: Hunting: way back in 1933 Claire Fintzel was trying to close a deal while pheasant hunting with a business associate. He was shot in the leg. He received $15 a week for 100 weeks (a paltry sum, to be sure, but this was back in the depression).

Boating: In 1941 Roy Linderman, a salesman for Cowie Furs, won a company-sponsored contest for highest sales. His prize? A fishing trip, during which, alas, he drowned. His death was deemed compensable.

Basketball: In 1982 Professor Charles Campolo of Briar Cliff College was partcipating in a faculty-student basketball game. At age 40, Campolo had a known heart condition. He died in the game's final seconds. Because the school derived a benefit from his participation, the death was compensable.

State by State
Kauffman takes a brief look of the compensability issue from state to state. It usually boils down to this: is the event truly voluntary? Does the employer derive a direct business benefit from the activity? To some degree the burden of proof is on the employer to demonstrate that there is no pressure on employees to participate - that participation is not the only true measure of "team spirit."

The state of Tennessee recently revised their comp statute, to provide clarification on the compensability issue. The statute is brief but comprehensive:

Public Chapter 407 (SB1909/HB1500) excludes from workers' compensation injuries that occur during recreational activities that are not required by the employer, and do not directly benefit the employer. Workers' compensation injuries that are covered under workers' compensation include those that occur where participation:
1) was expressly or impliedly (sic) required by the employer; or
2) produced a direct benefit to the employer beyond improvement in employee
health and morale; or
3) was during work hours and was part of the employee's work duties; or
4) occurred due to unsafe conditions the employer had knowledge of and failed to
curtail or cure the unsafe condition.

This statutory language summarizes the issues without tying the hands of judges unnecessarily. It's a good model for legislators contemplating changes. Beyond that, it's good policy guidance for employers who want to encourage team building and fun, without creating inadvertant comp exposures.

June 15, 2009

Back in April we blogged some of the formidable problems facing the obsolete, friction-ridden comp system in New York. Two years ago, Elliot Spitzer appointed Zach Weiss to clean up the mess, just as voters had chosen Spitzer to clean up the mess in Albany. As of last week, both Spitzer and Weiss had resigned their positions, albeit for different reasons.

Weiss announced that he is stepping down in order to become an administrative law judge, which he describes as a "higher paying and more secure job." Weiss will don robes for the Social Security Administration and issue rulings on disability cases. The onerous comp job paid a relatively paltry $120,800. The initial salary at his new job is $131,000.

Beyond the dollar difference, Weiss's new job entails making real decisions. What he says as a judge, goes. This will be in stark contrast to the job he just abandoned, where competing interests, deep pockets and decades of bitter rivalries have resulted in chaos and paralysis.

Weiss said of his new position: "It might seem like a step down for me. But it's really a good job. You have an opportunity to make a very consequential decision in people's lives." It pays more. People listen with respect. Your word is law. Gee, Zach, that's hardly a step down!

Back in April we linked Weiss's thankless task running New York's comp system to Barack Obama's challenges as the new president. The satirical news source The Onion announced Obama's election with the headline: "Black man given worst job in America." Well, by those standards Zach Weiss might have had the second worst job in America. Not any more.

Now, Ohio state officials are raising concerns about how the Chrysler sale could affect Ohio's workers comp system. This week, Ohio's Attorney General Richard Cordray has filed a "limited objection" to the pending sale. "While Chrysler's bankruptcy filings show the automaker is committed to fulfilling its workers comp obligations, the filings do not hold a new owner to the same conditions, the attorney general said." According to a news report in Columbus Business First, there are about 5,000 Chrysler workers in the state.

It is likely that this issue is on the radar screen for other stat attorneys general, too. Ceniceros states that, "As of Dec. 31, Chrysler had 38,257 U.S. employees. It purchases workers comp insurance in some states while self-insuring in others, according to various state regulator databases."

April 9, 2009

Colorado, like most states, is facing a serious budget deficit. They are scrambling to balance the budget. So the legislature came up with the brilliant idea of tapping the reserves set aside by Pinnacol, the state's largest provider of workers comp coverage, with 70 percent of businesses in the fold. Pinnacol began as a state operation and was subsequently spun off. It now operates - very profitably - as a mutual insurance company.

The state, facing a budget deficit of $1.4 billion, has its eye on $500 million that Pinnacol has set aside to cover the future costs of current claims. They have proposed a Rocky Mountain two step: first, make Pinnacol a state agency, as it once was, thereby assuming control of the company's assets. Then, draw $500 million from the reserves and use them to cover a chunk of the current budget deficit.

As is so often the case, Pinnacol is being punished for being successful. Despite having reduced comp premiums by 42 percent over the past four years, and despite having set aside the funds needed to cover future obligations on current claims, Pinnacol is now the proverbial sitting duck. Blinded by cash in the coffers, legislators are poised to make two big mistakes: deprivatize a successful privatization and destabilize a financially stable operation. What are they smoking in the thin mountain air?

Mediocre Alternatives
A consortium of Colorado businesses has lined up against the ill-advised measure. As an alternative, they suggest three steps to close the budget gap:
: "tobacco securitization" - selling bonds against future tobacco settlements [after the economic debacle of the past 8 months, you might label this proposed process insecuritization.]
: sell state buildings [in a depressed market???]
: Reduce the pay of all state employees across the board [easy for the private sector folks to say]

At this point, I'm not convinced that either plan is worth pursuing. As a general rule, it is a bad idea to solve big,short-term problems by making bigger, long-term mistakes. Here's hoping that cooler heads in the clear, mountain air of Colorado kick back with a Coors and figure out a better path toward solvency .

April 1, 2009

The New York Times has a fascinating, two-part article about serious problems in New York's workers comp system (parts one and two). New York has long been famous for its bizarre system, which is among the most expensive in the nation, even though its benefits have been among the lowest. There's a lot of money moving around, but not much of it ends up benefitting injured workers.

New York's system is the most frictional in America: virtually every step of every claim is reviewed by a judge. The lawyers make their money simply by showing up at hearing after hearing.

This cumbersome system routinely results in inordinate delays for injured workers. In a review of 2007 claims, AIG found that even unchallenged cases plod on much longer than necessary. Lost time claims took on average 802 days to reach a final stage, 30 percent longer than in the rest of the country. In comp, time is money, but not necessarily money well spent.

The Times article zeroes in on an area where you do not expect to find friction: the independent medical exam (IME).

In most states, IMEs are commonly used to establish a (relatively) objective profile of an injury. Representing neither the injured worker nor the insurer, IMEs try to separate fact from fiction and provide a road map to future management of the claim. It is in the best interests of insurers, employers and injured workers to make the IME process as objective as possible.

In New York, the IME system is corrupt and chaotic. IMEs are routinely performed by retired doctors who have little or no interest in fair outcomes. It appears that many IME doctors slant their results toward the insurer, under the dubious notion that "he who pays gets his way."

The NY statute allows injured workers to videotape the IME exams: based upon the findings in these articles, this is a right that every injured worker should exercise routinely, even if it means using the taping capabilities of a cell phone.

Here's just one of a number of appalling examples of IME corruption in New York:

Dr. Hershel Samuels, 79, with a radiant smile and a burst of snowy hair, stopped doing surgery years ago. Until recently he commonly filled his days performing insurance exams on workers, sometimes as many as 50 in an afternoon, he said in his small office in Borough Park, Brooklyn. [Fifty exams in one day!]

"You obviously can't spend a lot of time with that volume pushing up your back," he said. "You have to assume there are going to be errors. Look, there are a lot of holes in this thing."

At times, evidence shows, Dr. Samuels's official reports were quite different from what he appeared to find during an exam.

Consider his 2007 examination of Johanne Aumoithe, a pastry chef who said she had hurt her arm and neck. On a videotape that Ms. Aumoithe recorded on her cellphone, Dr. Samuels comments that she had limited range of motion. His written report concluded the opposite.

Asked about the discrepancy in an interview, Dr. Samuels chuckled and said he could not even recall the people he saw yesterday. The way he worked, he said, was to submit a checklist to a Queens company called All Borough Medical, which transformed it into a narrative.

"I never write a sentence," he said. "It's really crazy, but that's how it's done."

He often inserted numbers in the checklist -- say, a measure of hand strength -- after the person left, rather than as he performed the tests.

Was he sure they were correct? "I'm not sure of anything," he said. "They're just a guess in the first place." [I wonder how occupational doctors feel about that.]

The law requires a doctor to attest to the accuracy of a finished report before signing it, but Dr. Samuels said he rarely read them. He doubted he had read the Aumoithe report. "I just sign them," he said.

If he seldom read them, how did he know they were correct?

"I don't," he said. "That's the problem. If I read them all, I'd have them coming out of my ears and I'd never have time to talk to my wife. [Kudos to Dr. Samuels for wanting to talk to his wife!] They want speed and volume. That's the name of the game."

Dr. Samuels said he generally received about $100 for one of these exams.[That's about $95 too much. And by the way, Dr. Samuels is no longer performing IMEs.]

Under the circumstances, IMEs should be dubbed "insurer medical exams" or perhaps just "Incoherent Mediocre Estimates." It is not surprising to find that many judges in the New York system ignore IME results and rule in favor of injured workers. But that begs the question: why does New York tolerate a system that routinely delivers unreliable information? Zach Weiss, the new chairman of the workers' compensation board, said that he found the disparities in medical opinions shocking and that use of independent examiners was "off the charts." But then again, there is a limit to how many problems he can tackle at one time.

The Burden of History
New York's comp system grew directly out of the adversarial relationship between labor and management that characterized the early years of the 20th century (and which still exists in many places today). The continuing, pervasive use of judicial review for routine claim transactions is an indication that distrust between workers and management is built into the system's archaic infrastructure. (As appalling as the pro-management corruption of the IME process is, I am sure that equally repellant stories about worker fraud can be uncovered in the Empire state.)

When Barack Obama was elected president of the United States, the satirical Onion News headlined, "Black man given worst job in America." With all the problems facing the New York Comp Board, Zach Weiss can make the case that his job is ridiculously difficult, too. And, alas, it comes with no where near the perks.

March 24, 2009

Barry Estabrook of Gourmet takes a look at the tomato harvesting industry in Florida and it's not pretty. In Politics of the Plate: The Price of Tomatoes he suggests that if you've eaten a tomato this winter, it's likely that it was picked by a virtual slave. He focuses on Immokalee county, which a chief assistant U.S. attorney based in Fort Myers terms as "ground zero for modern slavery." Estabrook paints a dismal portrait of immigrant workers who are exploited, cheated, threatened, injured, and abused - some literally being locked up or chained to prevent escape. Estabrook notes that since 1997, law-enforcement officials have freed more than 1,000 men and women in seven different cases ... and those are only the instances that resulted in convictions. Given the illegal status of most of the victims, many are intimidated or reluctant to press charges.

We've covered the issue of modern day slavery in Florida before - same issues, but this time with oranges. Our posting covered the Palm Beach Post's stunning three-part special report on how Florida's famous orange juice comes with hidden costs.

Most people have a tendency to think of slavery as happening elsewhere but in reality, it exists right here in the land of the free. The Baltimore Sun recently featured an expose on slavery in America citing reports that "thousands [are] annually trafficked in America in over 90 cities; around 17,000 by some estimates and up to 50,000 according to the CIA, either from abroad or affecting US citizens or residents as forced labor or sexual servitude." According to a 2004 U.C. Berkeley study, these people can be found working in:

The article goes on to discuss each of these "employment" sectors, citing other studies and reports and summarizing the scope of the problem. In terms of farmworkers, it cites a 2004 Oxfam America report that found nearly two million farmworkers living in "sub-poverty misery, without benefits, without the right to overtime," without a living wage, or other job protections, including for children. The Oxfam report noted that most state laws perpetuate inequality, especially Florida and North Carolina.

This issue is largely but not exclusively one of immigrant workers. We've talked about the issue of illegal immigrant workers many times before as the issue relates to workers comp - or lack of it. There are many hardliners who feel that if a worker has illegally entered this country to work, well the heck with them - they get what they deserve. We strongly disagree. We believe that employers everywhere at minimum owe workers a safe workplace, good working conditions, fair pay, dignity, and basic fairness. Worker exploitation diminishes us all. In many industries, state and federal laws protect workers. But legal protections for some industries such as farmworkers and domestic workers are weak, fall under the radar.

In Estabrook's Gourmet article, he ends on a somewhat hopeful note in discussing how wholesale buyers - large supermarket chains and fast food restaurants - could make an enormous difference in the situation by refusing to deal with exploitative growers. So far, several fast food chains - Yum! Brands, owner of Taco Bell, Pizza Hut, KFC, Long John Silver's, and A&W; McDonald's, Burger King and Subway, and only one grocery chain, Whole Foods, have all signed on to the Campaign for Fair Food, an initiative of the Coalition of Immokalee Workers, a grass roots worker organization that is fighting for: "a fair wage for the work we do, more respect on the part of our bosses and the industries where we work, better and cheaper housing, stronger laws and stronger enforcement against those who would violate workers' rights, the right to organize on our jobs without fear of retaliation, and an end to indentured servitude in the fields."

March 4, 2009

Back in December we blogged the sad story of Taneka Talley, who was stabbed to death while working as a clerk for Dollar Tree. Her assailant, Tommy Joe Thompson, singled her out simply and solely because she was black. At first, Dollar Tree denied the claim, under the theory that Talley's race - not her employment - was the cause of the attack. After public outcry, Dollar Tree's insurer decided to pay death benefits to Talley's 11 year old son.

This case generated a lot of comment from Insider readers, who were divided on the whether the incident should have been compensable under workers comp. Now a California assemblywoman, Mariko Yamada (D-Davis), has filed a bill to address the ambiguities of this case. AB 1093 would forbid the denial of a comp claim where the motivation for the injury or death was related to an "immutable" personal characteristic - such as race, age or gender.

Here is the proposed language to amend Section 3600 of Labor Code:

(c) No workers’ compensation claim shall be denied solely because the motivation behind what caused the employee’s injury or death was related to an immutable personal characteristic of that employee.

"By introducing 'Taneka's Law,' I hope that no other family in California will ever have to endure the unspeakable pain that the Talley family experienced," Yamada stated.

Chain of Ambiguities
The proposed language raises an interesting issue: what exactly is an "immutable" personal characteristic? Would this include mental disabilities (such as "intermittant rage disorder") or would such diagnoses be considered mutable? In terms of physical disabilities, where is the line between "permanent" (immutable) and "temporary" (mutable). Does anyone at maximum medical improvement (MMI) by definition have an "immutable" charateristic?

This bill is designed to close a loop hole in workers comp coverage. Should it become law, it will be interesting to track the inevitable loop holes that the new statutory language (inadvertantly) creates.

February 24, 2009

Audeen Jacobs was a teacher in the Clark County (Kentucky) school system. She retired in June 2003, but was hired back on a 100 day contract in the fall of that same year. In addition to her teaching responsibilities, she volunteered to sponsor the high school's Beta Club, an honor society that requires students to maintain a specific grade point average.

On December 6, 2003, she accompanied the students to a Beta convention in Louisville. She was paid while attending the conference and had secured permission from the high school principal to attend. In other words, Jacobs was clearly "in the course and scope of employment" when she fell from a set of bleachers and severely injured her left shoulder.

The Clark County school board denied the claim, lost at the initial and appeal levels, and lost for the last time at the Kentucky Supreme Court. The board argued that participation in the Beta club was not required and, like other extracurricular activities, the club was of "intangible benefit" to students.

The judges did not buy this specious argument. They pointed out that Beta club activities were directly connected to educational goals and that participating students had access to scholarships only available to Beta members. Jacobs was off-site, but directly involved in school-related activities.

History Lessons
Audeen Jacobs gave a lot to the kids in Beta. Maybe it's time for the kids to give something back. The Insider would like to propose an extracurricular project: a presentation to the school board on the history, purpose and importance of workers compensation. The kids might even ask Audeen Jacobs to attend, to share her experience of being injured and unable to work, the pain and shock of the initial fall, the subsequent operations, the medications, the indemnity payments that helped her pay her bills.

While the kids have the attention of a board that is clueless about comp, they might want to take the opportunity to provide an historical lesson in irony and ambiguity. Their high school is named for a revolutionary war hero. Here, courtesy of Wikipedia, is a little background on Mr. Clark:

George Rogers Clark (November 19, 1752 – February 13, 1818) was a soldier from Virginia and the highest ranking American military officer on the northwestern frontier during the American Revolutionary War. He served as leader of the Kentucky militia throughout much of the war, Clark is best-known for his celebrated capture of Kaskaskia (1778) and Vincennes (1779), which greatly weakened British influence in the Northwest Territory. Because the British ceded the entire Northwest Territory to the United States in the 1783 Treaty of Paris, Clark has often been hailed as the "Conqueror of the Old Northwest."

Clark's military achievements all came before his 30th birthday. Afterwards, he was disgraced and accused of being drunken on duty and therefore left Kentucky to live on the Indiana frontier. Never fully reimbursed by Virginia for his wartime expenditures, he spent the final decades of his life evading creditors, living in increasing poverty and obscurity, and often struggling with alcoholism. He was also involved in two failed conspiracies to open the Spanish controlled Mississippi River to American traffic. After suffering a stroke and losing his leg, he was aided in his final years by family members, including his younger brother William, one of the leaders of the Lewis and Clark Expedition. Clark died of a third stroke on February 13, 1818.

The name of George Rogers Clark graces the facade of the county high school. I wonder how many school board members - let alone kids in the school - appreciate the rich history behind that simple name.

February 10, 2009

Arthur Pierce worked for a trucking company in Virginia. In September 2006 he was found lying beside his dump truck. He had suffered a severe brain injury and was unable to communicate any details about what had happened. Physicians speculated that he had fallen from the truck (falls are the number one cause of injuries to drivers), but there was no proof and no witnesses. The unfortunate driver required constant care until his death in January 2008.

Due to the uncertainty of the circumstances surrounding the injury, Pierce was denied workers comp benefits. (This would have been a very large claim.) Ironically, if he had been found dead, the death would have been deemed compensable: when an employee is found dead at work, the fatal injuries are presumed to arise out of employment, unless there is a "preponderance of evidence" to the contrary.

Legal Remedy Fails
Lawmakers in Virginia, sympathizing with the plight of Pierce and his widow, proposed changes to the state's comp statute. Senate Bill 821 was aimed specifically at employees who suffer severe brain injuries and are unable to recall the relevant circumstances of the accident. (How many of these cases would there be in a year - or even a decade?)

Alas, SB 821 died in committee. Opponents feared that the bill would increase the likelihood of workers' comp fraud. They were actually concerned that employees would fake severe brain injuries to secure benefits. To be sure, fraud can be a real problem, but how can you possibly fake a brain injury?

SB 821 would have come too late to help Pierce, and was so specific in nature, it would probably never have been helpful to severely injured workers. It was a mostly a symbolic gesture toward a family that was not served well by the Virginia comp system. Arthur Pierce's work-related fall simply fell through the cracks.

February 2, 2009

Cody, Wyoming, was founded in part by "Buffalo Bill" Cody, the renowned slaughterer of buffalo. The town bills itself as the eastern gateway to Yellowstone National Park. "A small western town with a big city attitude." Sally Spooner, a long-time school teacher in the town, might question the "big city attitude." Sally tripped and fell at school in December. She suffered serious injuries, resulting in the amputation of her right leg below the knee. A simple matter of workers comp, right? Think again, cowboy.

The Cody school district, along with 45 of 48 districts in the state, has opted out of comp coverage for most teachers. (Wyoming, a monopolistic state, does not require coverage for all employees.) Using a rather crude risk management assessment, the Cody district provides comp coverage only for "higher risk" teachers: those working in wood and machine shops, along with those in special ed and transportation. The rest - the "low risk" employees" - are factored out of the comp premiums. Nothing ever happens to ordinary classroom teachers, does it?

Superintendent Bryan Monteith admits to feeling terrible about Sally Spooner's situation, but he has no regrets about the decision to eliminate comp coverage for most teachers. "We looked at it and said spending $175,000 a year for workers comp was not a good use for our money in terms of providing risk protection for the district. We decided using the money for salaries was a way to benefit the entire district."

Monteith admits that Sally is a great teacher. They would like to do something for her, but given "fiduciary responsibilities" to the district and the potential for setting a bad precedent, they probably will let Sally fend for herself. Call it frontier justice.

Pretty Scenes, Ugly Scenario
I expect that Sally will pursue a little frontier justice of her own. Because she is not subject to the "exclusive remedy" of workers comp, Sally can sue the district for her lost wages and medical bills. In addition, she can access the open-ended benefits excluded by comp, including her (considerable) pain and suffering and possibly loss of consortium. Depending upon the school's insurance arrangement for general liability, the ultimate cost of the settlement might wipe out the relatively modest comp savings.

Despite its cost, comp is generally a good deal for employers. For a relatively small premium, you are protected from the usually unforeseen, large losses like Sally Spooner's. Tort liability is off the table. Even more important, comp provides an immediate safety net for the employee: there is no anxiety about the (extraordinary) medical expenses and lost wages in the days, weeks and months following an injury.

Given a choice, Sally Spooner probably would have preferred the prompt, if somewhat limited, payments of comp, as opposed to the potential down-the-road payoff of a lawsuit. Alas, she is the victim of frontier justice, and unlike Old Faithful in Yellowstone, it's not a pretty sight.

January 6, 2009

We have been following the developments in West Virginia, where a once monopolistic state for workers comp insurance has been transformed into a competitive market. The well-designed transition began in 2006 with the creation of BrickStreet Mutual Insurance Company, which for a couple of years offered the only available insurance to employers. Last year other carriers entered the state; Bricksteet, faced with competition and a reduction in market share, had to lay off some staff. Now they are shedding some bad risks.

Gary Burton, BrickStreet's President, announced that the carrier is dumping about 1,000 risks, most of which will end up in the state's new assigned risk pool. These accounts sport combined ratios (losses compared to premiums) in excess of 200 percent. Burton mentioned one with a whopping ratio of 14,000 percent: akin to $140,000 in losses for $1,000 in premium. From an underwriting perspective, those numbers might have been acceptable for a subprime mortgage, but they don't work very well for conventional insurance.

West Virginia's new assigned risk pool will be managed by NCCI, a natural choice as they already administer pools in 20+ states. The servicing carriers are Travelers, Liberty Mutual and American Mining. Employers unable to secure coverage in the open market are likely to pay significantly higher premiums in the pool.

Thus far, West Virginia's transition to a competitive market seems to be going smoothly. The pain has been distributed across the board: to a population of workers that had long viewed comp as an entitlement, to employers in favored industries who long benefitted from suppressed rates for coverage and to some of the former state employees who ran the old, rather bloated system. No one would describe the new approach to workers comp as perfect, but the competitive market appears to offer a reasonable balance between the often conflicting interests of workers and employers. The creation of an assigned risk pool for poorly performing employers is simply one more necessary step in the eternal search for an effective and equitable system.

December 2, 2008

For many of us, Amityville NY brings to mind a book (and movie) called the Amityville Horror, which tell the story of an innocent couple moving into a house whose prior inhabitants had been murdered. The house is haunted by the ghosts of the deceased. If the story were to happen again, the house would surely be cleaned by Icon Cleaners.

New York's Labor Department has determined that Icon Cleaners unlawfully deducted hundreds of thousands of dollars from the paychecks of their 170 cleaners. Icon called these people independent contractor "technicians" - all of whom wore Icon uniforms, worked under Icon control and used Icon equipment. Not only were they not independent, they labored under conditions of virtual servitude.

Here's how Icon functioned: each employee was forced to pay a $500 security deposit upon being hired at the company, which could either be paid for up front or deducted from subsequent paychecks. ("Congratulations on your new job, sucker!"). Technicians often found their paychecks reduced for a variety of (illegal) reasons:

- In the event that a customer was not satisfied with the service provided by the company, or if the wrong services were rendered, a deduction was made from the employee’s paycheck.
- In instances where the company was doing a promotional campaign on discounted services, these discounts were taken out of employee paychecks.(!)
- If an employee indicated that he or she needed extra assistance on a particular project, in some instances Icon Cleaning would provide another worker for the project and that worker’s wages were deducted from the requesting employee’s paycheck.
- If a customer provided a check to the employee and it bounced, the employee was required make up for the lost revenues through payroll deductions.

Technicians worked up to 12 hours a day, 60 hours a week cleaning air ducts and carpets in private homes and businsses. After the illegal deductions had been made, some workers brought home less than $100 in a given week. They had been taken to the proverbial cleaners.

It's not surprising to find that customer satisfaction mirrored the working conditions; you can read some disgruntled customer comments here.

There is no mention of worker immigration status in the press release from the Department of Labor, but I suspect that illegal workers would be more likely to tolerate these intolerable working conditions. It's ironic, of course, that Icon is in the cleaning business. When it comes to fundamental employee rights, it doesn't get any dirtier than this.

November 24, 2008

There are a number of ways to purchase workers comp insurance: most companies secure stand-alone policies. Under experience rating, if the company has losses, their costs go up; if they have lower than average losses, they benefit from reduced premiums.

Some companies join with others to form a self-insurance group (SIG), where individual companies are no longer in charge of their own destiny. Group performance determines future costs. Needless to add, it's important to limit group membership to companies fully committed to good loss controls and to proper management of injured employees. The shared liability for losses is known in the insurance world as "joint and several liability." There is some risk involved: one company might be loss free, but the losses of other companies in the group could still drive up the cost of insurance for all.

Except in Ohio. Ohio has an unique set of rules for groups, which brings us to the saga of Corky & Lenny's, a deli operating for half a century in Cleveland. Until recently, Corky & Lenny's participated in a workers comp group. Unfortunately, they had a few claims. In most group situations, their losses would have been averaged against the performance of the group as a whole, thereby ameliorating the impact on the deli's comp premiums.

Instead, the group threw Corky and Lenny's out of the group, forcing them to secure individual coverage. Naturally, with their recent losses factored into their premium, Corky and Lenny's were suddently faced with a dramatic increase in costs. So they did what one of their customers would do after slipping on a stray piece of pastrami: they sued.

Re-establishing Joint & Several Liability
Common Pleas Judge Richard McMonagle found merit in the lawsuit and has issued a restraining order against the Ohio Bureau of Workers Comp (BWC). Here is the problem with the BWC approach to group insurance: the bureau assesses a group's risk at the beginning of a policy year and sets premiums based on the claims history. Members of the group are offered deep discounts. At the end of the year, group managers would toss out any members with substantial losses during the year. These unfortunate companies would take their losses with them. Instead of "joint and several" liability, the high loss companies, like Corky and Lenny's, were suddenly on their own, facing doubled premiums. Companies remaining in the group, freed from the losses of expelled members, experienced premium reductions of 20 percent or more.

As you can see, the Ohio rules really defeat the purpose of group insurance. Judge McMonagle has ruled that state law requires that the rating plan be retrospective, taking into account the actual performance of each and every group member. The BWC agrees, but they are hoping for some time to work out the details. In the interim, they have agreed to cap increases for companies tossed out of the group at 100 percent - which does not sound like a bargain, but some were facing increases substantially higher than that.

Judge McMonagle has moved this unfair situation in the right direction. He deserves a nice pastrami sandwich on rye bread with a little mustard. Under ethics rules, of course, he'll have to pay for it himself.

November 17, 2008

Florida employers have seen about a 60% rate decrease since the 2003 workers compensation reform but it looks like all that is about to change. NCCI has just filed for an 8.9% Florida rate increase in the wake of a recent Florida Supreme Court ruling. This is an enormous change, particularly in light of the 18.9 percent decrease that had been proposed prior to the ruling.

Why such a giant leap? In Murray v. Mariners Health/ACE USA, the court struck down a cap on attorney fees, which had been a hallmark in Florida's 2003 workers compensation reforms. Hourly legal fees were eliminated and replaced with contingency fees capped at 20 percent of the award.

An article in Insurance Journal at the time of the ruling tracks some of the reaction by employer and industry groups. Unsurprisingly, this ruling is wildly unpopular with those groups. According to Cecil Pearce of the American Insurers Association:

"A key driver of claim costs prior to the reforms was hourly attorney fees, which made the cost of litigated claims 40 percent higher in Florida than in any other state because of the increased litigation. The 2003 reforms linked attorney fees to the value of benefits secured through a fee percentage schedule, eliminating the ability of claimant attorneys to bill by the hour. With that law now overturned, it is expected that an increase in workers' compensation premiums will be inevitable."

A 2001 benchmark study of Florida Workers' Compensation Claim Costs conducted by the Workers Compensation Research Institute (WCRI) noted that Florida was among the most litigious of the eight large states studied. According to Richard A. Victor, executive director of WCRI:

"The involvement of defense attorneys in workers' compensation claims - an indicator of litigiousness - is highest in Florida and growing ... About 30 percent of claims with more than seven days of lost time involved defense attorneys in Florida, a nine percentage point increase for claims with 24 months' experience since 1994. By contrast, defense attorneys are involved in less than 8 percent of claims in Texas and Wisconsin."

The study revealed that defense attorney expenses were also the highest in Florida at more than $2,600 per claim - three times higher than Connecticut, the study state with the lowest expenses.

A Florida Insurance Council Backgrounder on 2003 Comp Reforms noted that today, "The percentage of workers' comp cases with attorney involvement remains higher in Florida than the national average - 20 percent in Florida compared to about 16 percent nationally. The percentage of cases where the injured employee represents him or herself is the same or less than before the 2003 reforms."

November 11, 2008

Here are two items you might never expect to appear together: frozen embryos and workers comp. But a case in Arkansas reveals that the comp system can easily be drawn into the ongoing (and apparently endless) debate of when life begins.

Wade and Amy Finley were married in 1990. They were unsuccessful in having children, so in 2000 they initiated infertility treatments. They froze several embroyos as part of this effort.

In July of 2001, Wade was killed in a job related accident. In accordance with Arkansas's comp statute, Amy received survivor benefits. In June of 2002, nearly a year after Wade's death, Amy had the previously frozen embryos emplanted in her womb. Wade Jr was born in March of 2003. Amy immediately filed for comp dependency benefits on behalf of her newborn son.

Her claim was initially declined, then allowed, and then brought before the Arkansas Supreme Court. The court defined the problem as follows: Does a child, who was created as an embryo through in vitro fertilization during his parents’ marriage, but implanted into his mother’s womb after the death of his father, inherit rights under Arkansas comp law?

Suspended Animation?
Amy asserted that the child was Wade's and as such was entitled to dependency benefits. The workers comp commissioner argued that Wade Jr was neither born nor conceived during the Finley's marriage, which ended upon Mr. Finley’s death.

It is clear from the statute that in order to inherit through intestate succession as a posthumous descendant, the child must have been conceived before the decedent’s death. However, the court points out that the statutory scheme fails to define the term “conceived.” Was the merger of cells in a petri dish - followed almost immediately by freezing - a conception? Was that microscopic event the beginning of life?

Ultimately, the court did not buy Amy's argument. The justices state that their role "is not to create the law, but to interpret the law and to give effect to the legislature’s intent." Arkansas statutes do not specifically define the petri dish merger as a "conception." Wade Jr is the child of his father (whom he sadly will never know) and the dependent of his mother. But he is not a dependent as defined for workers comp purposes and as such does not qualify for benefits.

Amy was certainly within her rights to have Wade's child after his death. The state is apparently within its rights to preclude dependency benefits for the child. The court punted on the issue of when life begins, leaving that sticky question for the state legislature. I recommend against their trying to resolve it once and for all.

October 27, 2008

Emma Murray was a certified nursing assistant for Mariner Health Care in Florida. While helping to lift a patient, she suffered a uterine prolapse, which required a hysterectomy. She filed for workers comp, but her claim was denied because the carrier determined that the condition was not work related. Murray appealed. Based upon a favorable independent medical exam, she prevailed. The court awarded her $3,244.21. That's chump change for the comp system, but Murray's award is not the issue. The case before the Florida Supreme Court involved the fee owed to Murray's attorney.

Under the most recent reforms to the Florida comp statute, attorneys are supposed to be paid according to the following schedule:
20 percent of the first $5,000
15 percent of the next $5,000
10 percent of the amount above $10,000

You can see where this is going: based upon Murray's rinky-dink award of $3,244.41, her attorney collects $649. The attorney put in 80 hours, so the hourly rate for the effort is $8.11 - in the same order of magnitude as "would you like fries with that burger?"

The Florida Supremes found some ambiguity in the statute, as there is language awarding "reasonable" fees outside of any specific formula. The court noted that defense attorneys billed for $16,000. If you multiply the 80 hours of work performed by Murray's attorney with the usual and customary fee of $200 per hour, the resulting fee would be about $16,000.

Bottom line: the court ordered the carrier to pay Murray's attorney $16,000 for securing a $3,244 settlement for her client. Naturally, business and insurance people are outraged by the court's ruling and fearful of its implications for the future. Claimaint attorneys, by constrast, have raised their glasses in a toast to the black robed justices.

A World of Gray
Is the ruling bad for workers comp? Will attorney fees drive rates back up? Strict adherence to the above fee standard would have two potentially negative consequences: attorneys would walk away from small cases (bad for claimants) and they would hold out for the largest possible settlements (thereby enhancing their fees). Of course, there is a distinct possibility that some attorneys will aggressively pursue "nuisance" claims, in the sure knowledge that it won't benefit their clients very much, but they will make out like bandits. (I know, analogy in poor taste...)

When it comes to defining "reasonable," reasonable folks will disagree. It's always been that way and always will be. Workers comp is supposed to be no fault and friction free. In the best of all possible worlds, attorneys would not even be needed. But in case you haven't noticed, we are not yet living in the best of all possible worlds.

October 15, 2008

Back in April, we blogged the troubled status of workers comp in New Jersey, a patronage-ridden system that failed to provide timely benefits to many injured workers. The system suffered from a decades-long inertia: yes, there were problems for injured workers, but employers benefitted from relatively low rates. There was little groundswell for reform; the last effort to update the legislation took place in the 1970s.

This past spring, Dunstan McNichol and John Martin, reporters for the Star-Ledger, ran a lengthy expose of problems in the system. Perhaps muckraking is not what it used to be, but in this case, it worked wonders. Governor Corzine recently signed five reforms bills into law, all stemming from the exceptional reporting performed by McNichol and Martin.

Here is a brief summary of the bills:

S1917/A2969: The governing board of the state's rating bureau is expanded to include representatives of labor, business and the general public. Presumably, the meetings will be open and, for the first time, actions of the board will be documented.

S1916/A2968: This bill ensures prompt judicial attention to disputed claims. In the past, workers might wait years (literally) for treatment if a carrier disputed the claim.

S1915/A3059 requires employers to submit proof of workers comp coverage on their annual reports filed with the Department of Treasury. As with many states, undercollection of premiums penalizes employers who carry full coverage for their workers.

S1913/A2966 increases the power of judges to enforce the law against insurers, employers or attorneys who fail to comply with a judge's orders or deadlines.

In the original expose, McNichol and Martin demonstrated that the appointment of judges was based almost entirely on patronage. We can only hope that legislative reforms include training for judges and sanctions (including removal) for those who are unable or unwilling to improve the way the system functions.

While it will take some time to determine the effectiveness of the New Jersey reforms, these five laws definitely move the system in the right direction, toward fairness and accountability. The fix is in - and that's a good thing. Of course, a system is only as good as the people who run it. It's comforting to know that an independent and quality press - exemplified by McNichol and Martin - will be on hand to monitor the results.

September 17, 2008

I am pleased to report that workers comp has entered into the informed debate that characterizes our pending national election. It is inspiring to see the national dialogue confront - one by one - the complex issues that face this country as we creep on all fours through the new millenium.

Mike Wooten is a trooper with the Alaskan state police. He was involved in a messy divorce from the sister of Alaska Governor and GOP Vice Presidential nominee Sarah Palin. Palin and her husband, Todd (AKA "the First Dude") apparently had concerns that Wooten was collecting workers comp, even as he was participating in some heavy (as opposed to "light") duty functions away from work. Palin and the Dude believed that Wooten had gone “snowmachining” during his alleged disability. Perhaps he was just having a good day?

It also appears that Wooten had “applied for and got a ticket to go hunt a moose.” I can't speak for our readers, but I do know that when I strained my back a couple of years ago shoveling snow, my first thought was that it might help to go hunt moose, until I realized that there weren't any in my immediate neighborhood. A number of close friends advised me that the best cure for intense back pain is to go out and shoot something, preferably from a moving snowmachine. It was a compelling argument, which at that time I chose to ignore.

Fraud, Malingering or Politics?
In the fall of 2006, Wooten injured himself in the line of duty when he pulled a body from a wrecked automobile, slipped on icy pavement and injured his back. He underwent surgery and was on “light” duty and had filed for worker’s comp when he could not work. The records do not indicate how long Wooten was on light duty or why this assignment came to an end.

John Cyr, head of the union for state troopers, believes that the guv and first dude were up to no good. “Todd Palin was following Mike around snapping pictures of him,” he is quoted as saying. “Frank Bailey (Palin's director of boards and commissions) was getting people to say that Mike was lying on his worker’s comp form. The governor’s family was following Mike around everywhere. They forwarded that information to the worker’s comp division."

While I'm impressed that the First Dude took it upon himself to run a secret investigation, thereby saving taxpayers the cost of hiring an outside investigator, he might have been better off leaving this to the professionals. Given the magnitude of the fallout from "troopergate," the First Couple might do better next time to "drop a dime" to the insurance fraud bureau through an anonymous call: I'm guessing that they still have pay phones in Alaska.

Regardless of what you think of their politics or their methods, Palin and the Dude have taken a pro-active stance on workers comp fraud and they deserve credit for raising the profile of this under-reported issue. The Insider embraces this opportunity to further the national dialogue on the compelling issues of our time, even as we peruse Craig's List for barely used snowmachines in good running condition.

September 8, 2008

When it comes to insurance, Florida is the land of Oz. You might think you know what risk transfer is, or how insurance companies operate, but the rules change as soon as you enter the Sunshine State. We already described Florida's strange approach to property coverage, where the state has pretty much self-insured for the inevitable catatrophe (which may be approaching, as we write, in the form of Hurricane Ike). Whereas the state has taken on too much risk in the property line, they have severely hobbled the ability of carriers to function in commercial lines.

Under the guise of eliminating "excessive profits" in workers compensation, employer liability, commercial property and umbrella coverages, Florida allows insurance companies an underwriting profit of no more than 5 percent over a three year year period. Anything above that amount must be returned to policy holders. (You can find the statute, 627.215, here.)

Florida Insurance Commissioner Kevin McCarty recently ordered six workers' compensation insurance companies to return $4.2 million in these "excessive profits" to their policyholders.

"This is further evidence that the workers' compensation insurance reforms implemented by the Florida Legislature in 2003 are working," said McCarty. "These policyholders are businesses that will get back some of the premium they've been paying for the past three years."

The six companies that have been ordered to return premiums to policyholders are: Alaska National Insurance Co. ($144,488), American Interstate Insurance Co. ($3,027,030), Church Mutual Insurance Co. ($768,259), Harco National Insurance Company ($4,819), Midwest Employers Casualty Co. ($218,337) and Petroleum Casualty Co. ($94,329).

Those mandated refunds look like chump change compared to the bill for The Chubb Group: McCarty issued a Consent Order requiring Chubb to refund over $13 million in excess profits to its customers. What was Chubb's sinful three-year loss ratio? An admirable thirty three percent.

Insurance Basics
Florida could use a little education in the basics of insurance. Yes, insurance companies seek to make a profit - we call this capitalism: like it or not, it's the way this country functions. Insurers make money by operating in the following manner:
1. Rate setting (where permitted by state law): carriers charge premiums that are likely to result in profit. Because the market is competitive, they cannot charge whatever they feel like. In fact, most rates for workers comp are significantly deflated by state regulation and local market competition.
2. Underwriting: carriers try to select only the best risks. Insurance companies want to sell insurance to people least likely to need it. It's a crap shoot at best, but some companies have a real knack for it.
3. Claims management: ideally, insurers try minimize comp costs by speeding recovery and getting people back to work; they might also arbitrarily deny claims, restrict treatment and make life difficult for claimants.
4. Claims reserving: by setting accurate reserves, carriers balance the books and avoid the future shock of under-reserved claims.

Insurers have good years and bad years. The problem with the "excessive profits" approach is that it severely limits profits in good years, which are required to offset losses in bad years. Florida does not care if a carrier loses money: when it comes to underwriting losses in the Sunshine State, the free market prevails! Thus Guard Insurance, running a five year loss ratio of 115 percent, and Safety National Group, with a whopping 184 percent, simply have to absorb the losses on their own. NOTE: Data provided by AM Best.

One final irony in Florida's approach: carriers must return "excessive profits" to all insureds, even those who have incurred substantial losses. So an employer with a three figure loss ratio (losses exceed premiums paid) actually gets money back. Isn't that sweet!

For many years, Florida's "excessive profits" statute has been dormant, as most carriers were losing money or barely breaking even. Now that changes in the comp statute have helped carriers turn the corner on profits, the day of reckoning is at hand. The carriers who have done the best job of pricing insurance, screening risks and managing claims are going to be hammered the most. Sometimes trouble comes in dramatic form, as with Hurricane Ike. Sometimes, it sneaks in through the back door, in the Ozian legislative kibosh entitled "excessive profits."

July 16, 2008

We have been following the saga of the busted trusts in New York (here and here). Twelve workers comp trusts, all administered by Compensation Risk Management (CRM), have apparently failed. The workers comp board has decided to hit up the remaining trusts for the shortfall. These latter trusts are all solvent, and all are administered by someone other than CRM. The healthy trusts have been asked to cough up $11 million to pay for the sins of others, a mere 8,000 percent increase in their monthly assessments. That's joint and several liability on a New York scale, indeed.

The solvent trusts cried foul and took their case to the New York Supreme Court, where they won the skirmish and most certainly will lose the war. Acting Supreme Court Justice Kimberly O'Connor has put a temporary halt to the assessments, not because they are illegal, but because the comp board has not proven that the failing trusts are in fact insolvent.

"Insolvency must be real and actual prior to imposing the assessment, not prospective or speculative," she wrote.

Attorney for the solvent trusts, Rich Honen, has declared victory. "Annulled and vacated is what we asked for. The petition was granted."

That's like scoring two runs in the top of the first inning and claiming victory. This reprieve is not likely to last. In her ruling, Justice O'Oconnor has (somewhat reluctantly) upheld the board's right to assess healthy trusts. Board chair Zachary Weiss is semi-thrilled: he surely does not like the delay, but he is "pleased...that this decision will allow us to collect the money needed to pay the claims of injured workers."

Assuming the board's auditors can work their way through the CRM mess in a timely manner, the assessments will be in the mail before long. That's a tough pill to swallow: the healthy trusts played by the rules, paid actuarially sound premiums and confronted reasonably accurate reserves on their claims - none of which can be said of CRM's accounts. In this case, the good guys pay the price for the scoundrels. It isn't fair, but after all, this is New York.

July 15, 2008

What could be more horrifying than the idea of being buried alive? It's the stuff of nightmares. novels, and scary movies, tapping into one of our most primal fears. Yet unfortunately, buried alive is not just the stuff of fiction. Every year, it's the same old story - collapsing trenches kill workers at both commercial and residential work sites. Deaths are sometimes caused by asphyxiation or drowning when trenches fill with soil or water. It's also quite common for workers to die from being crushed by the sheer weight of the soil - which can exert pressure of more than two tons per cubic foot of dirt. Sometimes, workers are alive and talking while they are being rescued only to die during or shortly after the rescue, succumbing to injuries from the sheer pressure of the weight, which compresses the chest and cuts off oxygen to muscles and extremities.

News reports often focus on desperate rescue efforts with co-workers and emergency crews frantically digging to free a trapped colleague - yet many of the deaths happen when workers jump in an unsecured trench to try to save a colleague and a secondary collapse occurs. Trench rescues require speed and expertise - trained rescue workers understand the risks to both the endangered worker and to rescue workers. Before a rescue can safely occur, the site must be secured - something that should have happened before the collapse. Time is critical because even when a worker's head or upper torso is visible, irreversible crushing injuries can occur in less than 10 minutes.

These are immensely frustrating deaths because they are preventable with proper safety precautions - but all too often, time and budget trump safety. Breathless news coverage often refers to the accidents as freak events but that implies that the event couldn't have been anticipated or prevented. Unfortunately, there is nothing unusual about the collapse of an unsecured trench - without proper safety precautions, any excavation over 5 feet which is deeper than it is wide is a problem waiting to happen.

Call Before You Dig - resources for nonprofessionals
In addition to being at risk for trench collapses, the do-it-yourself who tackles home improvement projects may face electrocution and other risks when digging is involved. A new, federally-mandated national Call Before You Dig 811 number was created to help protect homeowners from unintentionally hitting underground utility lines while working on digging projects. In addition, each state has
different rules and regulations governing digging, some stricter than others. This map provides information on state-specific dig requirements.

July 8, 2008

Ronnie Ramroop was an employee of Flexo-Craft Printing in New York. In March of 1995 he caught his hand in a press, crushing four fingers. After seven surgeries, two fingers were amputated. It goes without saying that this is a work-related injury; workers compensation paid the medical bills, loss of function benefits (Ronnie lost 75% of the use of his hand), along with indemnity for lost wages. Ronnie received benefits through January 2000, at which point his eligibility ended.

Ronnie then applied for the "additional benefits" available under New York law. To receive these benefits, Ronnie had to prove that the impairment to his wage-earning capacity was due solely to the work-related injury. That's where Ronnie's claim hit a big snag: Ronnie is an undocumented worker. Yes, his inability to work is connected to his rather severe injury, but it is also related to the fact that he is not qualified to work in this country. As the court put it, Ronnie's appeal puts into clear focus the tension between the statute's voc rehab objective to return an injured worker to the marketplace and the re-employment of a worker who is not allowed to work. Some tension, indeed!

The NY Court of Appeals, in a 5 to 1 vote, has denied Ronnie's claim for additional benefits. They concluded that it was not the Legislature's intent to "restore to re-employment" a worker who cannot be lawfully employed.

The Lone Dissent
The dissent by Justice Ciparick raises an interesting issue. The judge quotes Chief Judge Cardozo, who emphasized the humanitarian purposes of the comp statute, with its goal of ensuring that injured employees "might be saved from becoming one of the derelicts of society, a fragment of human wreckage." Judge Cipatrick believes that the right to full benefits should be considered an absolute, unrelated in any way to a worker's immigration status. For this (dissenting) judge, there are no tiered benefits. All workers are entitled to all the benefits.

Virtually all the comp statutes in the US were drafted before the issue of undocumented workers became visible. A number of states have begun to step into the documentation and enforcement void created by a paralyzed Congress: they are drafting punitive laws on the hiring of undocumented workers (and thus giving rise to great concerns among American businesses). Some of these same states are toying with the idea of curtailing comp benefits for undocumented workers. This would be the final step in the creation of a truly third-class workforce, with sub-standard working conditions, wages and protections. We will have come full circle, with the fears of Judge Cardozo fully realized: millions of essential jobs performed by a marginalized workforce - derelicts of society, fragments of human wreckage.

June 17, 2008

Yesterday we blogged the New York Workers Comp Board's unusual solution to a cash flow problem: when a dozen trust funds collapsed, the Board decided to hit up the remaining, solvent funds with an assessment: they raised assessments from the routine total of $500,000 to a staggering $12 million. The Board is using the logic of notorious bank robber Willie Sutton, who famously said that he robbed banks because "that's where the money is." In this case, the Board is hammering the people who paid their full premiums and whose administrators abided by the rules, simply because they have the money. The board has transformed the "several liability" of independent trusts into a gerry-built "joint liability." While their motives are good - benefits to injured workers must be paid - their method is patently unfair.

In their press release, the Board pats itself on the back for forcing the third party administrator, CRM, out of business in New York. Here are the terms of the settlement:
- CRM surrenders its TPA license no later than September 8, 2008, and ceases representing self-insured employers and carriers before the Board;
- CRM transfers to the Board all claims, as well as the responsibility for the administration of all such claims, for all of the group self-insured trusts that it still administers; and
- CRM assists in the well-ordered and timely transfer to the Board of all claim files, documents, information, and funds associated with the trusts.

"The Board sought to revoke CRM's license and today's agreement accomplishes just that," said New York State Workers' Compensation Board Chair Zachary Weiss. "This result speaks volumes about both the strength and validity of the charges the Board brought against CRM. It also sends the strong message that we will vigorously safeguard the well-being of honest business and injured workers."

The results may speak volumes, but not necessarily in the manner Weiss intends: yes, the charges obviously had merit; yes, it's important to shut down CRM's operation. But what about accountability? According to an unidentified spokesman, CRM has admitted no violations and paid no fines or penalties. Despite the apparent deliberate misrepresentation of actual losses, despite paying their own executives inflated salaries, despite creating this entire mess, CRM just walks away. For the moment at least, they are off the hook, while the solvent trusts who played by the rules are required to dig deep into their own pockets.

Eventually, when the forensic audits have been completed, members of the failed trusts will probably receive retroactive bills for underpaid premiums. Then it will be their turn to howl. When and if that happens, the Board has promised to refund the humongous assessments placed (unfairly) on the solvent trusts. That is not very reassuring to innocent bystanders facing immediate bills for someone else's problem. My guess is that the Board will run up against the same problem as Willie Sutton: the money might be there (in the trusts), but that does not make it right to take it. Through attorney Richard Honen, the solvent trusts have filed suit to end this ill-conceived bailout. In the interests of fair play, here's hoping they find a sympathetic judge.

June 16, 2008

Compensation Risk Management (CRM) is a third party administrator for eight workers comp trusts in New York. These trusts offer comp coverage to affinity groups in the areas of health care, wholesale/retail and transportation. As we read in the New York Times in an article by Steven Greenhouse, there is good news and bad news about CRM: the good news is that CRM offered low cost premiums to members and high rates of reimbursement to its own executives. The bad news is that the reserves in the the trusts were woefully inadequate. In one of the trusts, reserves fell from 90 percent to 40 percent of liabilities in just a few months.

Trusts have long offered a major alternative to (expensive) conventional insurance for New York employers. About 35 percent of the state's businesses are self insured for comp, with one fifth of those participating in trusts. The really bad news in CRM's collapse is that other, healthy trusts may have to pick up at least part of the tab for CRM's poor management. The workers comp board has ordered that the state's 50 healthy trusts pay emergency assessments totaling tens of millions of dollars. As you might imagine, they are not thrilled to be doing this. In fact, they have sued the board, saying that it has no right to force them to contribute. At this point, they have been granted injunctive relief.

State officials believe that a $200 million emergency fund will be needed to finance the statutory benefits of thousands of injured workers covered by 12 failing trusts. So ultimately, the taxpayers will have to make up for CRM's management deficiencies.

The Company Line
Eric Egeland, a CRM VP, said that the problems were caused by an unexpected increase in workers comp liabilities and fast-rising medical costs. (Gee, Eric, that's why you have actuaries!) He said the eight trusts could not increase reserves fast enough in response to their increased liabilities because of recent state-ordered cuts in comp premiums. (I don't think so, Eric. If you set reserves properly, a cut in rates will not present any unusual problems.)

If you peruse the long list of executives at the company website, you begin with the CEO, Daniel Hickey, who is described this way: "At age 22, he attended the Aetna Institute, the nation’s top property and casualty training program, and received the coveted Gold Ribbon for excellence in sales presentation." Note that the gold ribbon is for sales. He might have been better off shooting for a gold ribbon in management.

CRM's management of their comp business is now under intense scrutiny. Too little, too late. The artificially low premiums pleased their participants, but these deflated premiums simply masked inadequate reserves. The risk managers took far too many risks. Now, as usual, those who played by the rules will have to pick up the tab.

June 9, 2008

Back in November we blogged the saga of Judge Robert Restaino, a City Court judge in Niagra Falls NY. He apparently was having a terrible, horrible, no good, very bad day on March 11, 2005, when a cell phone went off in his courtroom, in violation of his judicial protocols. When no one fessed up to the crime, he jailed 46 people, most of whom had been waiting for disposition of domestic violence cases.

At the time of our first blog, New York's judicial oversight commission had voted 9 to 1 to fire Restaino. He appealed. Now the State Court of Appeals, with a vote of 6 to 0 with one abstention, has upheld the termination. The Appeals Justices said they have "serious doubts that this breach in trust is reparable."

Restaino is not without his supporters (two wrote in to comment on our original posting). It appears that his work, prior to this incident, was satisfactory. Niagra Falls District Attorney Michael Violante (excellent name for a DA!) was disappointed in the outcome. "He had a bad day and it's cost him the bench...I think that it's very unfair, frankly." Even one of the judge's critics, David Jay, a Buffalo civil rights attorney, thinks the outcome was too harsh. He believes that the courts need a disciplinary option between the extremes of dismissal and censure.

Aaron Besecker, author of the article in the Buffalo News, points out that at the time of the incident, Judge Restaino did not have a cell phone. Now that he is out of a job (and a comfortable salary of $113,900), he might want to invest in one. You always want to be accessible when someone calls with a lucrative job offer.

June 4, 2008

California had a long-standing reputation as a workers compensation nightmare: not because injured employees received generous benefits - they did not - but because doctors and lawyers exploited the system to generate enormous fees. Governor Schwarzenegger, AKA the Terminator, put an end to that with his extensive 2003-04 reforms. In the effort to contain costs, the reforms for the first time brought managed care tools into the comp system. The bottom line for employers has improved dramatically.

Among the many provisions of the reform was a limit on physical and occupational therapy treatments for an injury. Injured workers are now limited to 24 visits. Jose Facundo-Guerrero, a worker at a nursery in Half Moon Bay, challenged the limits on constitutinal grounds, alleging that he was entitled to the "full provision for such medical, surgical, hospital and other remedial treatment" promised in the CA Constitution. Jose had visited his chiropractor 76 times and he wanted the carrier to pay.

The First District Court of Appeal in San Francisco has upheld the limits in the comp reform package. They found that the Constitution does not require "unlimited" treatments and leaves the details up to the legislature.

Arbitrary Limits
There is no question that the 24 visit limit is arbitrary. This one size does not fit all. On the other hand, chiropractic treatment can be addicting. It feels good. Jose went 76 times and might well have continued on indefinitely, had the treatments been compensable.

One aspect of the reform language caught my eye: the 24 visit limit can be exceeded if the employer agrees. This raises an intriguing possibility. If valued employees require extensive physical therapy that goes beyond the arbitrary limit, enlightened employers might well authorize the carrier to cover a specific number of additional visits. This makes sense as long as it keeps the employee happy and productive.

As with so many workers comp issues, law makers struggle to find the middle ground between no limits and severely curtailed treatments. What's missing is reliable and effective lines of communication among employers, their employees, medical providers and insurance carriers. The rigid limits on treatment in California are apparently legal, but that does not mean they are fair. There is no question that the reforms of 2003-04 have reduced costs. Ironically, injured workers were not the primary beneficiaries of the state's pre-reform, out-of-control comp system. And it now appears likely that these same workers will pay the price for reforms as well.

June 3, 2008

In yesterday's blog, my colleague Julie Ferguson discussed the issue of compensible illness for firefighters. Forty states already have statutes giving the benefit of the doubt to firefighters: if they become ill from many forms of cancer or heart disease, the illness is presumed to be work related. The burden of proof (and "burden" is surely the operative term) falls to the municipality to prove that the illness is not work related. Nevada has taken it a step further: in the police department, any heart attack is considered work related, with no consideration of personal habits (smoking, overweight, high fat diet) or family history. That is a very generous - and potentially expensive - public policy.

As with any medical issues, you have to examine the evidence. Where it can be demonstrated that specific occupational exposures lead to specific illnesses, a basis for presumption is established. That is a fundamental of evidence based medicine. But as a matter of public policy, it is extremely hazardous to build presumption into the comp statutes. There are many forms of cancer. There are many risk factors for heart disease. By establishing a presumption that virtually any illness related to these dreaded diseases is work related, state and local governments are exposed to an enormous - and open-ended - liability. To be sure, there is always a risk that a deserving firefighter might have to undergo lengthy litigation to prove his or her illness is work related. But that process - universal in the comp system - is the necessary price we pay for participating in comp's unique disability coverage. As much as I admire the public service contributions of police and fire personnel, I believe that they should operate under the the same rules that cover all employees: their illnesses are compensable if they are demonstrably work related. In most instances, this requires a case by case review.

Follow the Money
The issue here is not medical treatment: these illnesses, if determined to be unrelated to work, would be covered under conventional health insurance. (To be sure, it's cheaper for the claimant to be treated under the comp system, as there are never any co-pays or deductibles.) As is often the case with comp, the real issue is indemnity. For firefighters, that usually means wage replacement that is 100% of their usual pay, tax free. In other words, a firefighter on workers comp makes more than one on active duty. When you combine a presumption of compensability with an already generous indemnity benefit, you have created a bitter and expensive cocktail (with state and local taxpayers picking up the tab).

Virtually all municipalities operate under a "zero sum" budget, where increased expenditures in one area (expanded coverage for illnesses under comp) become a net subtraction in another (municipal services, public safety, schools, water supplies, etc.). It may seem politically expedient to speed compensability for some of our most valued local employees (police and fire), but governments do this at great risk to the bottom line, not to mention reducing all other valued municipal employees (city workers, teachers, public works) to second class citizens.

In a word, a presumption of compensibility is a slippery slope toward budget chaos. We have an obligation to protect our public protectors. But offering presumptive comp coverage for virtually any illness is an invitation to fiscal ruin.

May 21, 2008

Rhode Island may be small, but when it comes to tackling the problem of undocumented workers, they think big. Last month, Governor Donald Carcieri issued an executive order encouraging law enforcement officials - from state police to local cops - to determine the immigration status of anyone taken into custody and take immediate steps to deport those who are here illegally. Rhode Island has basically concluded that the federal government is not going to enforce the law, so they will take on the burden themselves.

For the record, the scale of the undocumented worker problem in Rhode Island is relatively small: the governor estimates that there are between 20,000 and 40,000 such workers in the state. What is not clear from the executive order is just how proactive the governor wants law enforcement to be: it's one thing to check people's status after they become involved in the criminal justice system; it's quite another to go out looking for immigration violators. Do you check for citizenship after a motor vehicle citation? After a domestic disturbance? When you hear people speaking Spanish?

The Workers Comp Perspective
The RI Workers Compensation Court has its own view view of the rights of undocumented workers, one which appears to be in conflict with the Governor's. Chief Judge George Healy recently told community advocates: "Believe me when I tell you, we do not inquire about the employees' documentation. That is not an issue that the court concerns itself with."

Earlier this year we blogged the story of Edgar Valasquez, an undocumented worker who was seriously injured in an accident involving a chain saw. His employer dropped a dime on Edgar, who was arrested and deported while on his way to a workers comp hearing. Eventually, Valasquez was able to collect his benefits (he currently is back home in Mexico).

Despite the assurances of Judge Healy, there is no way for the workers comp system to ensure the rights of injured illegal workers. The latter can pursue statutory benefits, but they do so in the shadow of the governor's new enforcement effort. Judge Healy cannot prevent law enforcement from arresting comp claimants outside his courtroom.

The governor has taken an additional step to disenfranchise undocumented workers: he has proposed a bill that would explicitly exclude them from workers comp coverage. This is a draconian approach to an increasingly unstable situation. Undocumented workers are already operating in a twilight zone of unfair labor practices and unsafe working conditions. If they lose their access to workers comp, they will be at the mercy of their marginal employers. Once hurt, these workers would have no access to benefits of any kind. They would have to disappear and try to make their way back home. (Cynics may think this acceptable, but it is unfair and unAmerican.)

Donald Carcieri invokes the authority vested in him as governor of the "State of Rhode Island and Providence Plantations." It appears that he takes the "plantation" part of his title seriously. He is creating a segment of the workforce with few more rights than slaves.

We all agree that there is a problem here that desparately needs fixing. Despite the continuing inability of the Congress to fashion a coherent legislative approach, this is no time for individual states to jerry-rig their own solutions. A little patience is required. In this key policy area, the "Ocean State" will soon be lost at sea.

April 8, 2008

New Jersey is known for many things, including these odd tidbits: three consecutive governors broke their legs while in office (Whitman, McGreevey, Corzine); no self-serve gas; no state song; the lowest rate of depression in the US. And an idiosyncratic workers comp system that has not been changed significantly since the 1970s. We will pass on whether they need a state song (surely Springsteen could provide one), but the comp system needs some fixing.

Dunstan McNichol and John Martin, writing a multi-part series in the Star-Ledger, have done an admirable job exposing the considerable holes in the New Jersey comp system. With inordinate delays in the provision of benefits (it can take years), with no way to determine whether injured workers are receiving the benefits they need, with political patronage the order of the day in the appointment of judges, and with a bureaucratic structure that makes New York seem streamlined (yikes!), New Jersey is operating in the darkest of dark ages.

McNichol and Martin point to the plight of John DeJulio, a retired veteran working at Home Depot. He slipped on a puddle and broke his leg. It took more than three years to secure approval for knee surgery: over the course of two years he had to see five specialists and attend nine court hearings before the surgery was approved.

Claimant Joe DelDuca was involved in a work-related car crash. When a hearing on his claim was postponed for the 8th time in two years, he plowed his pick up truck through the glass entrance of a workers comp courthouse in Morris County. (No, any injuries resulting from this rash act would not be work related.) Ironically, his desparate ploy worked. One week later the judge order all parties back to court, weeks ahead of the scheduled hearing. They settled DelDuca's claim in a few hours. Unfortunately for the claimant, he was subsequently jailed for 6 months and died within two years of his claim's resolution.

Idiosyncrasies
New Jersey definitely goes its own way in comp. In terms of cost to employers, they are middle of the pack, ranked in the most recent Oregon study at 23rd overall. They run their own, unique experience rating system, independent of NCCI. Benefits can be generous, but they also can be extremely stingy: workers with minor injuries can receive permanent partial awards, even after returning to full duty; on the other hand, workers reaching maximum medical improvement (MMI) can lose all benefits, along with their jobs. McNichols and Martin describe the inordinate delays in accessing the second injury fund.

In most states, a workers comp advisory council oversees the performance of the system and makes recommendations for improvements. These councils, a blend of labor, management and administrators, can serve a vital function in fine-tuning benefits and in defining parameters for eligibility. New Jersey has a council, but the meetings are closed to the public and minutes are not recorded. Kind of a Star Chamber for comp, which, given the way things currently operate, is emblematic of a deeply flawed system.

Employers are generally content with the current state of affairs, because it is reasonably cost effective. The only real pain in New Jersey belongs to injured workers, who can encounter considerable difficulty in securing the benefits they need to stay afloat. I suspect that injured workers in the Garden state might have a few suggestions for a state song: the Stones's "I can't get no satisfaction," or maybe the Ray Charles classic, "Drown in My Own Tears."

April 7, 2008

Nassau County in New York is currently paying about $10 million a year for the partial disability claims of former county employees. They would like to settle these claims, but as with most municipalities, their budget process offers no opportunity for fronting the costs of settlement. It's cheaper to keep paying the claims from year to year, pushing the problem onto future tax payers.

The county is now exploring the idea of borrowing $55 million to off-load about 1,000 claims to a private insurer. In return for the one large payment, the insurer would accept responsibility for all the claims. We think Nassau County is moving in the right direction, but there are some significant pitfalls. (Perhaps county officials should read our February blog on Connecticut, which encountered serious problems in attempting the same off-loading procedure back in 2001.)

A Well-Dressed Gorilla
Any municipality seeking to privatize the handling of workers comp claims has to deal with the 800 pound gorilla, in this case appropriately dressed in a three piece suit: what is the true value of the claims being privatized? No one really knows. Because municipalities operate on annual budgets, they pay claims from year to year, presumably until the recipient dies. While actuaries could project with reasonable certainty the ultimate cost of each claim, no such projections have been made. In Connecticut, the projections were performed by untrained college students. Their guesses wildly overstated the value of the claims, resulting in grossly overstated "paper savings." Instead of saving CT taxpayers money, privatization became a collosal rip off.

The fact that the county is spending about $10 million a year on these claims tells you very little, if anything, about the ultimate value. In fact, the only way to determine the real value is to secure a professional review of the claims, preferably before the county issues its RFP. That way tax payers will benefit from real savings and carriers will understand the actual risk of the undertaking.

Of course, the carriers are salivating at the $55 million upfront payout. They are probably so confident in their ability to make the cash grow, they could care less how accurately the county claims are reserved. Given today's market (subprime mortgages, anyone?) a little caution is certainly in order.

We've been down this road many times before: county officials dreaming of million dollar savings; private carriers dreaming of healthy profits. That's a lot of dreaming, which quickly turns into a nightmare if the process is not approached with an appropriate appreciation for the complexity of the task. A word to the wise is (presumably) sufficient.

February 6, 2008

We have been following the cosmic shift in the administration of workers' comp in West Virginia, where a monopolistic state has morphed into a competitive market. The future looks rosy, but there is much pain in the transition. It's one thing to tighten up eligibility requirements and build a new "return-to-work" culture; the problem comes when the new culture clashes with West Virginia's long established "culture of disability."

About a year ago we blogged the transition from state administration to Brickstreet. One of the key elements in the transition involves moving about 46,000 existing claims from state claims adjusters to third party administrators (TPAs). That's a task that makes Hercules's cleaning of the Augean stables look easy! Sedgewick now handles about 39,000 of the claims, with American Mining and Wells Fargo picking up about 4,000 each. Try to imagine all those (mostly paper) files moving out of state offices, followed by the task of picking up the narrative and developing revised strategies for each and every claim.

The state's unfunded liability for these claims is about $3 billion - a big enough number for any state, let alone a small one. Over the years, the "culture of disability" resulted in one in seventy lost time claims turning into permanent and total disability (the next closest state comes in at a rate of one in 220).

It's not hard to imagine the pain and confusion inherent in transitioning the claims from the public to the private sector. TPAs will apply new and presumably much more stringent standards in determining ongoing eligibility. There is no way they will allow one in seventy claims to drift into permanent total status.

The Pain in Change
Which brings us to the heart of the matter: the very painful price exacted in any cultural transition. In West Virginia, disability payments had become a way of life, a way of supporting workers with no other means of support. In the state's perpetually depressed economy, indemnity for workplace injury paid the bills for thousands of families. This disability culture evolved over decades; it will not change in the Brickstreet blink of an eye. The three TPAs are sorting through 46,000 narratives of pain and loss. They are confronted with an embedded expectation that the benefits are an entitlement and should go on indefinitely. (One claim stems from an injury in 1929!)

The TPAs are trying to apply standard insurance criteria to long-established claims; they are breaking apart the old culture and paving the way for a new one. It will probably take 8 to 10 years to complete the process. Let's not minimize the trauma: the transition in West Virginia is comparable to the collapse of the auto industry - with one important difference, of course: in Detroit the old culture built cars; in West Virginia, the old culture built disability narratives. No amount of retooling can (or should) preserve that inherently unproductive way of life.

February 5, 2008

Workers comp in the public sector is like an iceberg: what is visible from year to year does not really tell you how big the problem is. With the budget funding cycle running fiscal year to fiscal year, there is no incentive to close out open claims. It's actually cheaper - in the short run - to keep paying on a monthly basis, as opposed to writing one big check to make the claim go away. There is no incentive for a sitting official to settle old claims.

The problem with this approach, of course, is that governments never confront the real cost of comp. The claims "ball" just keeps getting bigger and bigger - a problem, in effect, that is constantly pushed ahead to the next elected official.

Back in 2001 officials with the Department of Administrative Services in Connecticut recognized the problem and tried to do something about it. They made a deal with ACE Financial Solutions, which agreed to assume up to $150 million in potential liability from 660 workers' comp claims. By privatizing the handling of the claims, the state reduced the number of workers' compensation cases it was handling and saved $13.5 million in both 2002 and 2003. The state used a bond to raise the funds for off-loading the claims. (A bond spreads the cost over many years, as opposed to making a big hit on the "current" fiscal year.)

In return for assuming the $150 million liability, ACE was paid $80 million. Sounds like a good deal for Connecticut, doesn't it? Alas, the state failed to follow its own procurement standards and they apparently way overpaid for the privilege of handing off the claims.

Nothing in Reserve
With private insurance, it's pretty easy to determine the value of claims. You simply take, in this case, the 726 claims, add up the reserves and come up with a number. You cannot really do this in the public sector. With a "pay as you go" mentality, there are no meaningful reserves. You can project how much a claim will cost in a given year, but no one really knows how long the payments will go on and what the ultimate cost of the claim will be.

MRM Consulting,a private firm, was hired to determine the ultimate value of the claims: that's where the $150 million figure came from. Unfortunately, MRM hired untrained college students to make the estimates, at the attractive rate of $105 an hour. That's great for the students, but bad for the state. CT Attorney General Richard Blumenthal has determined that the estimated total value of the claims was grossly overstated. Over 60 of the claims included in the estimate had already closed. As a result, the state overpaid ACE and wasted taxpayers' money.

Improprieties
ACE has paid the state $40,000 to settle a lawsuit by the AG's office that alleged the company paid an illegal $50,000 commission to brokerage giant Marsh & McLennan to get the workers' compensation contract. A similar lawsuit by the state against Marsh & McLennan over the deal is pending.

The AG's bottom line assessment is pretty harsh: "Privatization spawned inefficiency, incompetence and increased costs. We must reform conditions - lack of funding and procedures - that led to this bungled deal."

The Right Way
Privatization is really a good idea. When it is done right, it can save state and local municipalities a lot of money. But you need good fundamentals in three key areas: a professional assessment of the value of the claims; an open and competitive procurement process; and strong management oversight from day one. Yes, you can privatize the handling of claims effectively, but the need for good management does not end with the awarding of the contract. Indeed, good management looks for accountability and performance every step of the way. Privatization is not an invitation to wash your hands of a problem, but to partner with a competent vendor to achieve mutual goals.

February 4, 2008

When cables broke on a scaffold on the 47th floor of a New York high-rise residential building on a crisp December day, it took only about 6 seconds for the two window washers who had been on the platform to plummet 500 feet to the ground. Edgar Moreno was killed instantly but, astonishingly, his brother Alcides Moreno survived the fall.

The word "miracle" is often tossed about lightly, but in this case, Alcides Moreno's survival was part miracle, part physics, and part good medicine. As Moreno fell, he clung to the scaffolding, riding it to the ground and the platform provided wind resistance that slowed his fall. While his brother Edgar struck the ground at a probable speed of about 100 miles per hour, experts say that Alcides' descent probably slowed to about 45 miles per hour. Platform cables acting like the tail of a kite may have slowed him further.

"You get above six stories, it gets unusual,'' he said. "You get above 10 stories, it's rare. We've had two people survive 12, one person survive 14 and one person survive 19. Forty-seven stories is uncharted territory.''

Barie said he didn't know if Moreno set a record. No, he did not, at least according to the Free Fall Research Page. The record was made by a Russian airman, who survived a 22,000 foot fall in 1942 after his bomber was attacked by German planes. (There are many other fascinating fall survival tales at this site, and Moreno's story is on the front page.)

Of course, Moreno suffered grievous injuries - broken ribs, a broken arm, shattered legs and spine damage. He was in a coma for weeks and has undergone more than 16 operations. But within a few weeks, the prognosis looked good not only for his survivability, but likelihood that he would be able to walk again. In mid-January, he was dismissed from the hospital to a rehab facility.

Repeat safety violations
State records show that in the Moreno incident, the scaffolding had been cited for 10 violations in June, including four that were repeat violations. According to news reports, the brothers had complained about safety issues but were told the scaffolding was safe. Neither of the brothers were wearing safety harnesses when the accident occurred.

Worsening employment practices and the underground economyCity Limits looks at the matter of construction safety in New York, a problem that seems to be worsening:

"According to U.S. Bureau of Labor Statistics data on work fatalities, construction deaths in New York City more than doubled from 2005 to 2006, from 20 to 43. (Data for 2007 is not yet available.) Over that period, New York City also had a higher percentage of construction deaths than the U.S. overall, according to BLS: "the construction sector accounted for 43 percent of all fatalities; nationally, construction also led other sectors ... accounting for 21 percent of all job-related fatal injuries." The city's Department of Buildings (DOB), however, reported that between Jan. 1, 2007 and Oct. 31, 2007, construction-related fatalities dropped 43 percent from the same period in 2006, from 14 to 8, and injuries stayed constant - but accidents on high-rise sites increased from 23 to 42."

Part of the problem? City Limits links to and cites a recent report by the Fiscal Policy Institute (PDF) attributing much of the problem in New York construction to "worsening employment practices." City Limits summarizes this part of the report:

" ...the construction industry employs more than 200,000 workers in New York City, almost a quarter of whom work in the illegal "underground" construction industry. Not only does this lead to a half-billion-dollar annual financial loss because of unpaid payroll taxes and workers compensation premiums, according to the report, but it correlates with dangerous practices. Data from the federal Occupational Safety and Health Administration (OSHA) "indicate a strong correlation between construction fatalities and the characteristics of the underground economy: half of the deaths occurred among workers at very small construction companies, three-fourths of the workers involved worked for non-union companies, and failure to provide safety training was cited in over half of the cases."

It's a horrifying and daunting problem, but to their credit, city officials are taking action, and some improvements have occurred since 2006. A Suspended Scaffold Worker Safety Task Force was formed and several scaffolding-related laws were enacted to increase penalties. Many are also calling for an overhaul of the Department of Buildings, the regulatory body, which many fault for being slow and reactive.

Of course, all the deaths that we've discussed have occurred since these laws were enacted. The city needs to continue focusing on this issue because Alcides Moreno's story notwithstanding, the miracle plan does not make for good safety policy.

(Thanks to rawblogXport for pointers to many of the links we've cited.)

January 29, 2008

New Hampshire has come up with their own 12 step program to determine whether contractors are truly independent or just employees. Meanwhile, the IRS has come down hard on FedEx, hitting the company with a $319 million fine for misclassifying drivers as independent contractors.

Let's start in New Hampshire. The state has come up with 12 criteria for determining independence, all of which must be met or the system defaults toward an employer-employee relationship. The criteria include the usual focus on control of the work, but there are a few new wrinkles:

A. The person possesses or has applied for a federal employer identification number of social security number or in the alternative, has agreed in writing to carry out the responsibilities imposed on employers under this chapter.

[This appears to imply that undocumented workers - who cannot have federal id numbers or social security numbers - are automatically employees.]
...

F. The person has continuing or recurring business liabilities or obligations.
G. The success or failure of the person's business depends on the relationship of business receipts to expenditures.

Like Massachusetts, New Hampshire is looking for objective evidence that the independent contractor runs a legitimate business. Both states accept the presence of employees with the IC as compelling evidence - but that will not help the typical sole proprietor without employees. Whereas Massachusetts has stipulated that a subcontractor in the same trade as the contractor is by definition an employee, New Hampshire does not focus at all on the sub's specific trade.

Having issued all this clarification, the states now sit back and let someone else figure out the details. That someone else, alas, is the poor insurance auditor, who has been given the unenviable task of determining the status of each and every subcontractor. You don't suppose that this detective work is contemplated in the current fee structure, do you?

In MA, auditors have some latitude. If the independent contractor/sole proprietor does not have any employees, they are likely to be added to the general contractor's payroll for workers comp. In New Hampshire, auditors are held to a higher standard. They must inspect records and operations of every GC and sub to determine whether the subcontractor meets all 12 criteria for independence. They do this at their own risk: If they make a wrong determination, they are in violation of state law.

Closing in on FedEx
The IRS in December determined that FedEx drivers were misclassified as independent contractors. They slammed the company with a $319 million fine and penalties. Since the fine only covers 2002, FedEx could face additional penalties totaling over a billion dollars after the IRS completes its investigation. FedEx has already lost the argument in a number of states, including California. Now they've lost at the federal level as well. They are going to sit down with the IRS this spring to hash out the implications of their latest losing argument. (For our numerous postings on this important case, just enter "FedEx" in the search box.)

FedEx managers are apparently hanging their hopes on a 1995 agreement between FedEx Ground's predecessor company (Roadway Package System) and the IRS, which reads in part: "The Service agrees that it will not reclassify the RPS owner-operators as employees, except upon a determination after audit, that RPS has exercised control over the RPS Owner-Operators in a manner that conflicts with the 1994 Operating Agreement, Letter of Assurance and Exhibits." Unfortunately for FedEx, there is a growing body of evidence that the company exercises rigid control over every aspect of the relationship with their "independent" drivers, from uniforms and length of hair to schedule of pick up and delivery.

Much has been made of the liability facing FedEx in the area of employee benefits, but little attention has been paid to workers comp. We can safely assume that hundreds of current and former drivers have been injured on the job. When they come up with a total cost for violating fair labor standards, the comp costs will have to be added in. This long-profitable enterprise appears on the verge of accepting retroactive responsibility for as many as 17,000 employees. That's a lot of drivers and a truckload of liability.

January 17, 2008

The Tennessee Restaurant Association (TRA), as you might expect, is a lobbying group for restaurants. One of the benefits of membership is access to special insurance programs. Around 500 members participated in a workers comp program run since its 1993 inception by the TRA's charismatic director, Ronnie Hart. Unfortunately, as we read in the Tennessean, Mr. Hart had no experience in insurance - he was a lobbyist by trade. So he learned "on the job" for the first few years and then hired a company called Hospitality Management Plus to administer the program. The "plus" was apparently the routine doubling of management fees and unauthorized dipping into the reserves. The minus, alas, is that neither Hart nor Hospitality Management knew how to run an insurance operation. Both are now bankrupt.

The state's Department of Commerce & Insurance took over the fund in 2005. They originally estimated the shortfall at $1.5 million. The revised number is $4.8 million, which has upset the stomachs - and wallets - of the 500 or so members on the hook for payment.

Randy Rayburn, owner of the renowned Sunset Grill and Midtown Cafe, is very angry. He is also a bit circumspect: "In hindsight, what does a lobbyist know about running an insurance company?"

Frank Grisanti, a restaurant owner and trustee of the fund, says he knew that Hart was making a profit running the trust, but he did not see it as a conflict at the time. "I guess it turns out that it was poor judgment..." Grisanti is facing a $60,000 assessment as his part of the trust's liability. That's a lot of surf and turf.

I'm sure the restaurant owners now appreciate the need for a little due diligence in the insurance area. Just as they would not hire a plumber to be a lead chef, they might think twice about asking a lobbyist to run an insurance company. It looks simple enough, but on-the-job training is not the way to go. Now the owners are stuck with the bill. They'll need more than extra strength Tums for this severe case of "Hart-burn" in Tennessee.